China to set up $200 billion investment fund(2)

China’s recent $3 billion investment in The Blackstone Group may have been the tip of the iceberg, as the government prepares to launch a $200 billion investment fund modeled on Singapore’s Government Investment Corporation.

China’s top legislature has started to discuss a draft bill that will authorise the Ministry of Finance to issue 1.55 trillion yuan of special treasury bonds. The $200 billion proceeds will serve as the working capital for a new foreign exchange investment company.

The draft bill was submitted on 27 June by the State Council to the National People’s Congress, according to the Xinhua news agency. The draft bill is perceived to have a high chance of getting approved because it has the support of the financial and economic committee of the legislature, which has urged the government to speed up the process of establishing the investment company.

The investment agency, which is still at an early stage, will be modeled on Singapore’s Government Investment Corporation, which invests the country’s reserves globally across a number of asset classes, including public equities, private equity, infrastructure and real estate.

The local market will now be on tenterhooks in the months ahead, as it wonders where the management and staff of the new investment arm will come from. Buyout firms have struggled to find experienced professionals in the region, and GIC has suffered a number of key departures in the past 12 to 18 months as the war for talent has intensified, sources said.

According to Xinhua, finance minister Jin Renqing told lawmakers that the special treasury bonds will help drain the excessive liquidity in the market and improve macro-economic control. He added that the bond issue will also help to reduce and improve returns on China’s foreign exchange reserves, which stood at $1.202 trillion as of end of March.

China agreed last month to invest $3 billion for a 10 percent stake in The Blackstone Group. The move has been followed with interest as it marks China’s foray into private equity at a time when buyout, growth, venture capital and real estate funds are all vying for investments in Asia’s largest emerging economy.