China to invest abroad

Marketplace Staff Oct 10, 2006

KAI RYSSDAL: We talk a lot about western companies itching to get into China. The huge markets they have over there for almost anything. The tables are turned a little bit today. Beijing’s state pension fund is getting ready to make its first investments overseas. And, Nancy Marshall Genzer reports, it could mark the beginning of a feeding frenzy for Chinese cash.

NANCY MARSHALL GENZER: Until now, Chinese pension funds were limited to investing in anemic Chinese government bonds, or China’s wildly swinging stock market. But, with a growing surge of retirees and few young workers paying into China’s social security system to support them, Beijing has looked abroad. Former FCC Chairman Reed Hunt says China has arrived.

REED HUNT:“We’re going to see China becoming important, not just as an exporter that fills the shelves at Wal-Mart, but as an investor.”

But China is just poking a toe in international investment waters. The $29 billion state pension fund covers top government and military officials. Nobody wants to lose the boss’s money, so the fund’s Chinese managers are starting small, investing just a billion dollars abroad.

MINXIN PEI:“That’s peanuts.”

That’s Minxin Pei of the Carnegie Endowment for International Peace. He says the Chinese may just be throwing out peanuts, but they’ve caused a feeding frenzy because smart investment firms know the Chinese have a lot of cash that needs a home.PEI:“American asset management firms out to look at a much bigger prize — China’s foreign exchange reserves. That, right now, stands at close to a trillion dollars. And that’s the real prize.”Who’ll win the prize? Pei says the U.S. is the favorite. China has chosen two American firms to manage the pension fund’s initial investment.

Agreements were signed yesterday with Citigroup and Northern Trust Corporation.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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