Demystifying the Chinese Sovereign Wealth Fund

Abstract

The United States (“U.S.”) Federal Reserve (“Fed”) categorized the China Investment Corporation (“CIC”) and Central Huijin Investment Limited (“Huijin”) as Bank Holding Companies under U.S. financial law, and granted CIC and Huijin some important conditional exemptions. Exemptions, such as non-banking restrictions, are key for the CIC and the Huijin to perform their functions and are consistent with the prior practice of the U.S. Fed. Legal and factual analyses show that currently the CIC does not have an intention to apply for Financial Holding Company status. Nevertheless, the CIC should pay close attention to regulatory principles such as the system-wide supervisory approach and the source of strength doctrine. In order to ease the widespread misgivings the international community harbors against the CIC, China should enhance transparency, and join the global effort to govern and streamline the Sovereign Wealth Fund (“SWF”) in seeking mutual trust and cooperation.