China forex arm buys stakes in Australian banks

 

A Hong Kong-based unit of the agency that manages China's $1.4 trillion in foreign exchange reserves has bought stakes in at least two Australian banks, sources with direct knowledge of the matter told Reuters on Friday.

 

The purchases were small but suggest Beijing does not rely solely on its newly established $200 billion sovereign wealth fund, the China Investment Corp (CIC), to make direct investments in Western financial firms using the world's largest forex hoard.


A spokesman for the Australia and New Zealand Banking Group Ltd, Australia's third-biggest lender by assets, confirmed that SAFE Investment Co held less than 1 per cent of ANZ.

A spokesman for Commonwealth Bank of Australia Ltd (CBA), Australia's No. 2 lender, declined to comment. But a source with direct knowledge of the situation told Reuters that SAFE Investment Co held a stake in the bank.

The Financial Times reported on Friday that the Hong Kong-registered investment firm had bought stakes of less than 1 per cent in both ANZ and CBA over the past two months.

A banker familiar with SAFE Investment said the firm was also eyeing similar investments in London-listed firms, the FT said.

Sources at National Australia Bank Ltd told the newspaper that an entity of the same name had bought a stake of about 0.33 per cent.


NAB officials were not available for comment.

SAFE Investment declined to comment, as did the State Administration of Foreign Exchange (SAFE), the foreign exchange regulator in charge of foreign exchange reserves and implementing foreign exchange policy.

However, a government source in Beijing confirmed that the forex regulator has long had a unit in Hong Kong, and that it is tasked in part with investing some of the country's foreign exchange reserves.

The official added that the agency operated a similar entity in Singapore.

Concern over transparency

The composition of China's foreign exchange reserves is a state secret, but bankers have long assumed that at least two-thirds are parked in low-risk US dollar bonds.

Beijing last year established CIC in an effort to seek higher returns from part of the rapidly growing reserves, which reached $1.43 trillion at the end of September.

CIC has bought stakes in U.S. private equity firm Blackstone Group and Wall Street's Morgan Stanley.

Its head, Lou Jiwei, has said repeatedly that CIC would act as transparently as it could without hurting its commercial interests and that its motives were profit-oriented, not political in nature.

Some Western government officials are concerned over the rising prominence of sovereign wealth funds and their degree of transparency, particularly as some have bought stakes in high-profile Western assets.

Distressed financial services firms were favourites targets in recent months.

The lack of clarity around the SAFE Investment Co investments in Australia raised questions about the transparency of Chinese sovereign investments overseas, the FT said.

The Financial Times said SAFE had denied knowledge of the Australian bank investments or any investments in London-listed companies and asked the newspaper not to publish any details.

The investments in the Australian banks came to about A$200 million (US$175.7 million) each, the newspaper said -- tiny in the context of the country's total forex reserves. (Reuters)
 
 
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