CIC No. 2 Takes Shape

Ashby Monk

I noted back in March that China was thinking of setting up a domestic oriented SWF to help manage state assets. The fund was tentatively called “CIC 2.0” and was expected to fall under the domain of the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC). Significantly, the Economic Observer is reporting this morning that the “China State Council has approved the draft plan proposed by China’s state-owned assets regulator to set up a third state-owned asset management firm to better manage state assets.” CIC 2.0 will thus soon be a reality.

The new company will focus on consolidating the number of state-run enterprises to between 80 and 100 by the end of 2010. Indeed, the objective of CIC 2.0 will be to turn small, unprofitable state enterprises supervised by SASAC into profitable companies. According to EO, the details of the fund are still being sorted out, but I imagine that China will once again take a hard look at Singapore’s SWFs. Having apparently drawn inspiration from the GIC for the CIC, Temasek looks to be  natural model for CIC 2.0.

7 Responses to “CIC No. 2 Takes Shape”

  1. 1 rien huizer November 18, 2009 at 5:47 am

    The SASAC entities do look like the Temasek of the past (before morphing from a domestic state conglomerate into an international private investor). GIC to me looks more like SAFE+ than CIC. CIC remains the container for the state shares in the financial sector plus an investment role that is probably much more instrumental (i.e. it does what a coalition of bureacratic and party forces want and uses finance to that end) than autonomous. GIC is primarily a passive investor with a strong return orientation and apparently very autonomous. But this entity and CIC in its bank holding role are key vehicles for further rationalization and centralization of the Chinese state sector. Very contentious though.

  2. 2 MMcC November 20, 2009 at 1:08 am

    From memory, Temasek in its early days (1974-ish?) didn’t look much like its current state. It also inherited a number of unprofitable companies, along with some extremely tangled conglomerate structures that took years to resolve. Moreover, for the first 20 years or so of its life, it was perhaps the least transparent owner in Asia: in fact, it’s still not possible to find out exactly which companies were put under its control on day one. I (half-)agree with the comparisons between CIC 2.0 and Temasek but I think of 70’s Temasek, not 00’s Temasek, when I say it.

    The problem that SASAC’s new toy will confront is, in my view, a lot larger than the similar problems Huijin dealt with: while the new owner can sell, inject funds and restructure, it will politically difficult (ie: damn near impossible) for it to close anything down. Moreover, non-financial holdings of the kind the new entity will own don’t appear likely to see their valuations and profitability double (or more) overnight the way Huijin’s financial assets did in 2007…

  3. 3 MMcC November 20, 2009 at 1:26 am

    Sorry – sloppy thinking first thing in the morning: where I wrote “CIC 2.0”, I meant “Huijin 2.0”. The new body will, like Huijin, do almost nothing internationally and, very unlike CIC, will have no budget specifically aimed at international investments nor any mandate to make them. Functionally, the new body is a Chengtong clone and, if you’re reading this abroad and have never heard of Chengtong, you’re not likely ever to hear of the new body either. Comparisons with CIC are, in my view, misguided: the new body is almost 100% domestically-oriented and it won’t have (although it might quite like; who doesn’t?) much of an international profile.

  4. 4 Ashby Monk November 20, 2009 at 3:32 pm

    Interesting comments…I had to google Chengtong.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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