China’s CIC leadership is a political hot potato
By Paul Mackintosh - 08/07/13
The appointment of Ding Xuedong, former PRC vice finance minister and vice secretary general of China’s State Council, as chairman of the China Investment Corporation (CIC) brings to a close months of rumoured jockeying around the leadership of the US$500 billion (approximately) sovereign wealth fund (SWF). As of early July, however, the CIC had still not confirmed the appointment with an official press release on its website, with its latest release (dated June 27) referring simply to the withdrawal of Wang Jianxi as executive vice president.
The reported jockeying was not so much to take the CIC top seat for some, but to stay away from it. Though not exactly a poisoned chalice, leadership of the CIC does carry with it the risk of being in the firing line for another explosion of public ire such as the one that followed its $3 billion loss-making investment in private equity major Blackstone Group at the time of the latter's IPO in 2007, under former head Lou Jiwei, now China's new finance minister. According to the South China Morning Post, Mr. Ding received the assignment because of solid political ties and experience in (mostly agricultural) finance, although the same report cited concerns over his investment experience in the broader international sphere.
Exactly what this portends for the CIC remains to be seen, but the recent visit of the organisation's caretaker President Gao Xiqing to Pakistan to meet with Prime Minister Nawaz Sharif over the possibility of billions of dollars of investment into the still-struggling subcontinental nation smacks of politically-motivated commitments rather than value-oriented investing. Recall that CIC, as well as a leading limited partner (LP), is a major direct investor, which showcased in its latest (2011) direct report its own investments from Canada to Vietnam that put it in the same market with many other general partners (GPs), SWFs and pension funds. Its long-term investments, including private equity, constitute 11% of its total portfolio, but its direct investments have far greater mindshare in official and public opinion worldwide.
Mr. Ding may be a safe pair of hands in Chinese political circles, but whether that safety translates into prudent and effective management of the CIC's vast pool of assets remains to be seen. He is at least young, at 53 the youngest ever occupant of his current State Council post, which might hopefully give him the flexibility to adapt to his new post and learn new ways. But there are still lingering and fairly justified concerns that his appointment betrays the same kind of sub-optimal preferences on political grounds that other commentators are wary of in the funds’ investments. The whole process also conspicuously lacked transparency, despite the CIC's efforts to buttress its international image as a global standards-compliant institution. And Mr. Ding certainly has ground to make up: the CIC's 2011 annual report revealed a 4.3% loss in its international investments.