Wall Street Journal

Another Chinese state-run investor is making waves internationally by plowing billions of dollars into overseas equities, making bets on global stock prices even after the country has been burned on several high-profile deals.

BP PLC confirmed Tuesday that a Chinese government fund has accumulated a 1% stake in the British energy giant, worth about $2 billion. A person familiar with the company said the acquirer was the State Administration of Foreign Exchange, which he said had been buying up shares in BP since last summer. That follows word earlier this month that SAFE had purchased about 1.3% of French oil company Total SA, which is worth about $2.45 billion at current share levels.

A news department official at SAFE said they had no information about either investment. It's unclear why SAFE might be investing in BP and Total, although it could be a move to hedge against rising oil prices that have been costing the Chinese government, which subsidizes domestic fuel prices, billions of dollars. Rising oil prices generally boost the value of oil companies' shares.

SAFE's new interest in equities hasn't been limited to oil companies. In December, it emerged that SAFE Investment Co., a Hong Kong-registered company set up a decade ago by the State Administration of Foreign Exchange, had started building similarly small stakes in Australian banks. SAFE's purchases raise questions about China's strategy for managing its $1.68 trillion in foreign-exchange reserves, the world's largest, which rose by an average of $1.7 billion a day in the first quarter of this year.

In particular, they may suggest that China is shifting its overall holdings to assume more risk in hopes of earning higher returns. Brad Setser, a fellow at the Council on Foreign Relations, estimates that between 65% and 70% of China's foreign-exchange reserves are held in U.S. dollars.

In addition, SAFE's new prominence as an overseas stock investor may point to some bureaucratic rivalry within China's government. So far, China Investment Corp., a sovereign wealth fund established in September using a $200 billion chunk of China's reserves transferred from SAFE, has been the country's chief vehicle for investing in potentially riskier overseas equities. By contrast, SAFE has traditionally parked the nation's wealth in ultra-safe U.S. Treasury bonds and other very liquid assets.

Analysts say the recent moves by SAFE may reflect a desire to prove that it, too, can handle more sophisticated investments. Some officials at SAFE and its parent agency, the central bank, were unhappy when the mandate for making riskier bets with the reserves was assigned to China Investment Corp., according to people familiar with the situation, even though SAFE and the central bank have representatives on China Investment Corp.'s board. CIC's chairman, Lou Jiwei, is a former vice minister of finance.