Empty chair at CIC a cause for concern amongst investment industry observers
By Paul Mackintosh - 03/06/13
Widely circulated reports in the Financial Times and elsewhere show China’s much-storied US$482 billion sovereign wealth fund the China Investment Corporation (CIC) still struggling after two months to find a successor to its former chairman, Lou Jiwei, who left in March to become Finance Minister. Gao Xiqing, CIC vice chairman and president, has been conducting signings and other protocol functions in the interim.
In the last week of May, CIC announced that the PRC State Council had appointed Li Xiaopeng, a former Industrial & Commercial Bank of China (ICBC) vice president, as head of its supervisory board, replacing Jin Liqun, who is expected to become chairman of state-linked investment bank China International Capital Corp, while still leaving the post of chairman unassigned. Widespread speculation singles out Tu Guangshao, executive vice-mayor of Shanghai, but according to the FT he is reluctant to take the job, as are many other senior PRC financial figures.
Their concerns allegedly relate to the public backlashes triggered by CIC’s past flawed investments, including the loss-making $3 billion commitment to US private equity giant The Blackstone Group shortly before the latter’s 2007 IPO – although those criticisms did not factor in what CIC might have since learned in the way of private equity fund management from its investee. Challenges for CIC going forward may relate less to performance than its mixed mandate, particularly the presence of Central Huijin Investment, its holding company, which was established to invest in key state-owned financial institutions. Past speculation pointed to spinning out Huijin, though this has not materialised, but the responsibilities it confers still sit oddly alongside the rest of CIC’s returns-focused strategy.
CIC is also obviously aware of its high international profile. The farewell tribute to Mr. Jin thanked him for helping to “elevate global awareness and confidence in sovereign wealth funds”. The fund’s ... ahem ... dirty dealings include a 9% stake in UK utility Thames Water, with Prime Minister David Cameron and other UK officials, again, according to the FT, seeking CIC contributions to a $6.2 billion super-sewer project under London. Mr. Cameron went out of his way to name the CIC as a welcome investor while at an international development summit in New York. According to its website, CIC “is committed to operating responsibly and in full compliance of the laws and regulations in each of the jurisdictions in which it invests. CIC strives to contribute to the prosperity and development of local economies.”
However cautious and circumspect, CIC remains a huge pool of money and its new head will inevitably become a highly influential financial figure worldwide. Unless other figures take up the mantle, the CIC chairman role may fall to Mr. Gao by default. And if the pussyfooting around this key man role means that some measure of public accountability is creeping in to China’s hierarchy, perhaps it’s a welcome sign of institutional maturity.