Chinese Fund Invests $20bn To Widen Scope Of Domestic Bank$

China’s sovereign wealth fund has invested $20 billion (£10 billion) in a domestic bank that plans to turn into a commercial lender.

The move by China Investment Corp, which put $5 billion into Merrill Lynch this month, is part of a wider strategy to invest more in China rather than abroad. The injection into China Development Bank (CDB) was made by CIC’s domestic investment arm, Central Huijin, and will allow the bank, which finances local infrastructure projects, to meet capital requirements for commercial banks.

Analysts believe that CDB may now seek a stock market listing to raise further funds, sharpen its competitive edge and fuel its overseas expansion, following on from its $3.2 billion investment in Britain’s Barclays in July.

Many observers believed the acquisition of its stake in Barclays signalled its intentions to adopt a model closer to an investment bank rather than a public policy lender.

“The capital injection will boost CDB’s capital base significantly, improve its capability against risks and contributes to the bank’s commercial operations,” the People’s Bank of China, the country’s central bank, said.

The Chinese Government has already invested about $60 billion in Bank of China, Industrial and Commercial Bank of China and China Construction Bank before their overseas listings over the past few years.

CIC also said this month that it would inject capital into the state-owned Agricultural Bank of China to help fund its public listing. The sovereign fund, which is believed to have about $200 billion at its disposal, was set up this year to invest China’s vast foreign exchange reserves.

The fund has acquired a 9.9 per cent stake in Morgan Stanley and holds about 8 per cent of Blackstone, which it bought for $3 billion in June. Beijing said last month that from now on two thirds of CIC’s investments would be made domestically.

China is relaxing restrictions on foreign investments in local securities firms from today after agreeing to do so in May in trade discussions with the United States.

— China is clamping down on food exports with swingeing taxes of up to 25 per cent on the sale abroad of grains in order to stem runaway food price inflation. Exports of wheat, rye and barley will be subject to a levy of between 20 and 25 per cent in 2008, while exports of rice, corn and soya bean will carry a 5 per cent tax, the Finance Ministry said yesterday.

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