Abstract

The United States (U.S.) Federal Reserve (Fed) categorized the China Investment Corporation (CIC) and Central Huijin Investment Limited (Huijin) as Bank Holding Companies under U.S. financial law, and granted CIC and Huijin some important conditional exemptions. These Exemptions, such as non-banking restrictions, are consistent with the prior practice of the U.S. Fed and crucial for the CIC and the Huijin to perform their functions. As shown by legal and factual analyses, the CIC currently does not intend to apply for Financial Holding Company status. Nevertheless, the CIC should pay close attention to regulatory principles such as the system-wide supervisory approach and the source of strength doctrine. In order to ease the widespread misgivings that the international community harbors against the CIC, China should enhance transparency, and join the global effort to govern and streamline the Sovereign Wealth Fund (SWF) in seeking mutual trust and cooperation.

I. Introduction

The China Investment Corporation (CIC) was established on September 29, 2007, with the issuance of special bonds worth RMB 1.55 trillion by the Chinese Ministry of Finance. In turn, the bonds were used to acquire approximately USD 200 billion of China’s foreign exchange reserves to form the foundation of its registered capital.  Because its financing is grounded in financial instruments and subject to commercial obligations, the CIC maintains a strict commercial orientation and is driven purely by economic and financial interests.

The CIC selects investments based on established investment principles and values.  The CIC usually does not take a controlling role or seek to influence operations in the companies in which it invests. The CIC’s fundamental approach is to hold, manage, and invest its mandated assets to maximize the shareholders’ value. While every investment is unique, the CIC believes in the importance of having a long-term vision and, as a result, is committed to investing for the long-term. As a commercial investment institution, the CIC has full operational independence and makes investment decisions based on assessment of economic and financial objectives.

The CIC investments are not limited to any particular sector, location, or asset class and include equity, fixed income, and alternative assets. The CIC is committed to maintaining the highest professional and ethical standards of corporate governance, transparency, and accountability. The CIC’s comprehensive corporate governance structure includes a Board of Directors, a Board of Supervisors, and an Executive Committee. The CIC is governed by the Company Law of the People’s Republic of China and the CIC’s Articles of Association and operating guidelines. While the CIC operates with independence and its investment decisions are based on the pure economics of each deal, the CIC remains accountable to the State Council of the People’s Republic of China and, ultimately, to the citizens of the People’s Republic of China.

Central Huijin Investment Limited (Huijin) is a wholly-owned subsidiary of the CIC with its own Board of Directors and Board of Supervisors. Huijin was established only to invest in key state-owned financial institutions in China, it does not conduct any other commercial activities and is not involved in day-to-day issues within the institutions in which it invests.

Thus far, this article has provided an overview of the CIC, and its wholly-owned subsidiary, Huijin. Of course, the mystery surrounding the CIC’s foundation has not yet been clarified. On the contrary, the CIC’s investment in the Blackstone Group, Morgan Stanley and Reserve Primary have drawn attention and controversy across the world. Meanwhile, several state-owned banks in which Huijin has ownership stakes have expanded overseas, especially in the U.S., which has provided an opportunity to observe U.S. legal treatment of the CIC’s and Huijin’s property, and to consider the current position and future trend of the two companies.