China Investment Corporation (CIC) Definition

What Is the China Investment Corporation (CIC)?

The China Investment Corporation (CIC) is the sovereign wealth fund (SWF) of the People's Republic of China. The CIC was founded in 2007 and has assets under management (AUM) of more than $1.3 trillion. The fund invests on a long-term basis in global public and private assets to diversify the country's foreign-exchange holdings. The CIC operates three subsidiaries with two international offices. The CIC is the largest sovereign wealth fund of its kind in the world.

Understanding the China Investment Corporation (CIC)

The China Investment Corporation is the world's largest SWF, followed by the Norway Government Pension Fund Global, the Abu Dhabi Investment Authority, the Kuwait Investment Authority, and Singapore's GIC Private Limited. These funds are state-owned and operated, and are primarily funded using surpluses, revenues, and transfer payments, among others. Most funds have a specific purpose but are usually used to benefit a country's economy and its population.

As noted above, the CIC was established in Beijing in September 2007 in order to expand the country's foreign holdings while providing the best returns for its shareholders. It was initially funded with $200 billion in registered capital and has since grown to more than $1.35 trillion, according to its 2021 annual report.

CIC's investment decisions are made by committees and the fund operates on four main principles:

• Seeking maximum returns within acceptable risk parameters
• Investing for returns instead of corporate control
• Acting as a "responsible investor, abiding by the laws and regulations of China and recipient countries and conscientiously fulfilling [its] corporate social responsibilities"
• Conducting deep research for a prudent and disciplined decision-making process

Investments are made across a variety of asset classes, including equities and bonds, hedge funds, and credit investments in agriculture, commodities, infrastructure, and real estate. Investments are spread out between private and public entities. The CIC has strict professional investment personnel, corporate governance, and risk management practices in place to ensure that the portfolio remains within acceptable risk tolerance.

As of Dec. 31, 2021, the fund's portfolio was structured as follows:

• 47%: Alternative assets, such as hedge funds, risk parity investments, industry-wide private equity, private credit, real estate, infrastructure, resources, and commodities
• 35.4%: Public equity
• 15.4%: Fixed income, including sovereign and corporate bonds
• 2.2%: Cash, U.S. Treasury bills, and overnight deposits

Special Considerations

CIC has evolved considerably since it was established in 2007. The investment organization operates three subsidiaries:

• CIC International: Established in 2011, CIC International invests abroad in public market equity and fixed-income securities, and alternative asset funds including hedge funds, private equity, real estate, and venture capital.
• CIC Capital Corporation: This subsidiary was set up in 2015 and makes direct investments. These are alternative assets that aren't in pooled vehicles.
• Central Huijin Investment: This entity was originally part of CIC but was made separate. It takes equity stakes in state-owned financial institutions in the country and exercises its rights as a shareholder to promote changes to strengthen its stability and performance whenever necessary.

Criticism of the CIC

CIC's expansive portfolio of overseas assets received heightened scrutiny in recent years as China sought to become the dominant player in key technology areas and as Beijing exercised growing global economic and financial influence. These investments include stakes in such iconic infrastructure as Heathrow airport in London.

The U.S. Treasury Department reportedly scrutinized China's foreign investment activity. The U.S. government acknowledged much of China's foreign exchange reserves were being spent investing in U.S. assets. This included the China-U.S. Industrial Cooperation Partnership, which is a joint investment fund with Goldman Sachs targeting U.S. manufacturing and health-related companies. The joint fund managed to raise $2.5 billion, which was half of what it expected.