US-China Commission Report - Fatal System Error

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Development Committee and other cognizant organs have
always hoped that the investments of the foreign exchange
company will give expression to the national will, and,
other than investments in stocks and products of the financial
system, that it should also make some strategic purchases,
paying attention to some of the domestic ‘Going
Outward’ enterprises, etc. 157
This statement indicates that some Chinese officials are interested
in seeing Chinese sovereign wealth fund investments achieve
goals other than simply turning a profit. For example, when Chinese
appliance maker Haier announced in June 2008 that it was
considering a bid for General Electric’s appliance business, executives
at CIC said that one of its ‘‘mandates’’ is to help finance the
foreign investments of Chinese companies. 158 The China Development
Bank and other banks can be tapped to help finance such a
bid and even take a slice of equity in any deal. 159 In another case,
Aluminum Corporation of China (Chinalco) financed its stake in
Australian mining giant Rio Tinto by borrowing from the China
Development Bank, which recently was recapitalized with $20 billion
from CIC. CIC, in turn, received a large equity stake in the
China Development Bank. 160
CIC’s Governance
Technically, CIC is organized as a separate entity, owned by the
PRC government and reporting directly to China’s State Council.
This gives it a political standing equivalent to that of a ministry,
and a direct relationship with the State Council’s leader, Premier
Wen Jiabao. 161 CIC has a board of directors with 11 members, including
three executive directors, five nonexecutive directors, two
independent directors, and one director representing the employees.
None of the members serves on China’s State Council; however,
all board members have strong ties with the government and
the Chinese Communist Party.
CIC Board Chairman Lou, formerly deputy finance minister and
State Council deputy secretary general, has been recently appointed
as the chairman of CIC subsidiary Central Huijin, further
strengthening the companies’ merger. 162 CIC President Gao, a
U.S.-educated and -trained lawyer, who formerly was vice chairman
of the National Council for the Social Security Fund, China’s
national pension fund, also is CIC’s chief investment officer. Other
people serving in CIC’s top management include the following:
• Zhang Hongli, CIC’s executive director and chief operating officer,
and former vice minister of finance;
• Zhang Xiaoqiang, vice minister of the National Development
and Reform Commission;
• Li Yong, vice minister of finance;
• Fu Ziying, vice minister of commerce;
• Liu Shiyu, vice governor of the People’s Bank of China;
• Hu Xiaolian, head of SAFE and vice governor of the People’s
Bank of China;
• Liu Zhongli, former minister of finance;