44 Pages

Issuer:The National Bureau of Asian Research(NBR)

Executive Summary
This study examines the establishment, management, and investment decisions to date of China Investment Corporation (CIC), analyzes potential causes of concern, and identifies opportunities for engagement.
Main Findings:
• The need to generate higher returns was instrumental in CIC’s establishment and was built into its funding structure.
• CIC’s management consists largely of well-respected technocrats with investment experience and proven records as pro-market reformers.
• CIC’s international investments have so far been unremarkable. Its ownership of much of China’s banking sector may ultimately prove more consequential.

Policy Implications:
• There is, as yet, little evidence to support worries that CIC will pose a national security threat or will engage in investments meant to serve China’s broader strategic priorities.
• There are real causes for concern that CIC will abet financial corruption or provide unfair advantages to Chinese state companies.
• CIC’s emergence could also produce benefits for the United States and other countries. In addition to providing increased investment capital for countries in which it invests, CIC investments could accelerate China’s integration into the international financial system and drive liberal reforms in China’s domestic economy.
• Seizing the opportunities that CIC presents would require active efforts at engagement from the U.S., other countries, and international organizations. Attempts to limit CIC’s activities will limit these opportunities.

The emergence of sovereign wealth funds (SWF) has been one of the most prominent features of international finance. China Investment Corporation (CIC) has grown into one of the most prominent of the SWFs so far. It accelerates China’s integration into the international financial system and drives liberal reforms in China’s domestic economy. However, CIC's international investments have been unremarkable.