China's central bank plans to give $10 billion from its huge pile of foreign exchange reserves to a new entity to assist Chinese state firms invest abroad, four sources with direct knowledge of the matter said on Wednesday.
The People's Bank of China is in talks with China Reform Holdings Corporation Ltd, a state firm controlled by the State-owned Asset Supervision and Administration Commission, to set up a joint venture, probably abroad, the sources told Reuters.
"The central bank plans to offer $10 billion for the cooperation. The negotiations have been going on for a while," one source said.
"The two sides prefer to set up a joint venture overseas, which will try to help state-owned firms to invest abroad with foreign exchange reserves," the source added.
China has the world's largest stockpile of foreign exchange reserves of $3.3 trillion and Beijing has been seeking ways to diversify holdings to preserve value and improve returns.
The State Administration of Foreign Exchange manages the bulk of China's official foreign exchange reserves. The China Investment Corp, the country's sovereign wealth fund, was set up in 2007 with an initial mandate of $200 billion. The fund now had $410 billion under management at the end of 2010.
Sources told Reuters in February that CIC was set to receive a further $50 billion injection. CIC executive vice president, Jesse Wang, said in March that the fund had been given an additional $30 billion in 2011.
Beijing is also increasing efforts to support domestic firms investing abroad, in search of resources to feed its fast economic growth and 1.3 billion population.
Central bank governor, Zhou Xiaochuan, said in April that China was encouraging capital outflows to help reduce imbalances caused by net capital inflows.
China has accumulated a vast store of reserves as its massive export industry has sucked in foreign currency which companies must exchange at the central bank to comply with the country's closed capital account rules.
It was not immediately clear how the new operation would further China's stated ambition of making more overseas investments with its foreign currency holdings.
The Ministry of Commerce said in January it was targeting a total of $560 billion in outbound foreign direct investment in the five years to 2015.
China has faced repeated obstacles to making major overseas acquisitions in recent years, whether they are political objections from governments of potential targets or internal wrangles over the permissions needed to make deals.
The China Reform Holdings Corporation Ltd was established in late 2010, with initial registered capital of 4.5 billion yuan, to help SASAC consolidate state assets under its oversight and increase the efficiency of China's state sector.
This article is copyrighted by Reuters
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