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CIC may drop bank stakes to invest in US

07-07-2010 10:25 BJT Special Report:

China is considering stripping the country's 300-billion-dollar sovereign wealth fund of banking stakes to help it get around some US investment restrictions, a report said Tuesday.

The proposal would mean China Investment Corp (CIC) would no longer be responsible for holding the State's majority stakes in China's largest banks, the Financial Times reported, citing unnamed sources.

It would end CIC's status as a bank holding company in the eyes of the US Federal Reserve and free the Chinesewealth fund of certain restrictions when making investments, the report said.

CIC is believed to be targeting equities, bonds and real estate deals in the US market, it said.

The wealth fund currently holds shares in China's major lenders, securities firms and insurers through its domestic investment arm Central Huijin, which was set up in 2003 and transferred to CIC upon its creation in 2007.

CIC was established to invest overseas some of China's massive foreign exchange reserves, which stood at $2.447 trillion at the end of March, partly to gain better returns.

The bank stakes were valued at around $70 billion in 2007 and the bank dividends have been a major source of CIC's returns as most of its other investments are too young to have had significant yields, the report said.

It is unclear whether the sovereign wealth fund would be compensated for the loss of the bank holdings. The report said some senior policymakers were pushing for Huijin to be spun out of CIC and governed directly by the State Council.

Editor:Xiong Qu |Source: Global Times

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