Two Key Decisions for China's Sovereign Fund

Posted: 2 Mar 2012

See all articles by Bob Pozen

Bob Pozen

Harvard University - Business School (HBS)

Xiaoyu Gu

Harvard University

Date Written: September 19, 2011

Abstract

The China Investment Corporation (CIC) was China's sovereign wealth fund (SWF), established with $200 billion of registered capital in September 2007 to diversify China's foreign exchange holdings and increase risk-adjusted returns on those assets. CIC was unusual in that it had a strictly commercial orientation and market-driven investment mandate to invest in foreign assets but also served as the parent company of a 100 percent-owned subsidiary, Huijin, that invested solely in key state-owned financial institutions in China. Moreover, the fact that CIC was an SWF presented broader political challenges for it, its shareholder the Chinese government, its direct investments and their governments, and the world economy generally. This case involved two decisions CIC faced in early 2011: The first was how to best and most accurately articulate the relationship among CIC, Huijin, and Industrial and Commercial Bank of China (ICBC) to the Federal Reserve Board (the Fed) so that ICBC could expand its business in the United States while exempting CIC and Huijin from certain types of Fed oversight. The second was whether to appoint a board director to Morgan Stanley, a company in which CIC had directly invested close to $6 billion and held 9.9 percent ownership. Additionally, the case discussed SWFs generally and their rights and responsibilities to the global community.

Learning Objective: To educate students about the tensions between the commercial and political objectives of sovereign funds when operating within and outside of their home country.

Suggested Citation

Pozen, Bob and Gu, Xiaoyu, Two Key Decisions for China's Sovereign Fund (September 19, 2011). Harvard Business School BGIE Unit Case No. 311-137, Available at SSRN: https://ssrn.com/abstract=2014203

Bob Pozen (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Xiaoyu Gu

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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