China has approved the establishment of the State Foreign
Exchange Investment Company, a new ministry-level group, to manage
the country's US$1.06 trillion foreign exchange reserves, according
to the 21st Century Business Herald.
The new company will be transformed from Central Huijin
Investment Co Ltd, an investment arm of the central bank. It will
be comprised of several sections dealing with businesses in
different segments of the financial sector, such as banking,
insurance, securities, and forex investment.
The proposal for such a form of forex manager was brought to the
table of the Third National Financial Work Conference held
last month and approved before the week-long Spring Festival, which ended last
Saturday.
The passage of the proposal has ended a year-long debate over
how the country should adapt itself institutionally to better
manage its bulging forex reserves. Previously there had been two
mainstream opinions among government officials, academics,
financial professionals and all other experts.
One side suggested setting up an independent financial state
asset administrator, similar to the State-owned Assets Supervision
and Administration Commission. In this approach, Central Huijin
could be an affiliate company to the new financial state asset
manager, among other financial holdings companies under the same
umbrella. Or, it could remain under the State Administration of
Foreign Exchange, with the new financial state asset administration
to manage assets not held by Central Huijin.
The other group preferred a more commercialized scenario,
suggesting the transformation of Central Huijing to a shareholding
company to manage all state-owned financial assets. The State
Council and the Ministry of Finance could be involved in the
management of Central Huijin by sending nominees to its board of
directors.
The approval of the State Foreign Exchange Investment Company
has in fact avoided favoring or rejecting either of the two sides.
Once established, the company may follow the development pattern of
Temasek Holdings, the Singapore state-held financial holdings,
which has been regarded as one of the best performing
government-controlled enterprises in the world.
(China Daily March 2, 2007)