By Xin Zhiming (China Daily)
Updated: 2007-09-29 10:58

China Investment Corporation (CIC), the country's $200 billion sovereign wealth fund, formally started operation today as policymakers seek to diversify its $1.41 trillion worth foreign exchange reserves.

The new company will have Lou Jiwei, vice general secretary of the State Council and former vice finance minister, to act as chairman of the board of directors and Gao Xiqing, former deputy chairman at the National Council for Social Security Fund, as general manager, according to a statement released at the opening ceremony in Beijing.

Hu Huaibang, former secretary of the commission for disciplinary inspection of the China Banking Regulatory Commission, is the new agency's chairman of the board of supervisors.

Other major members of the company's management are also from government ministries.

One of the largest State-owned funds in the world, the new agency has aroused suspicions about its projected overseas investment, but chairman Lou said at the opening ceremony that it will operate in a transparent manner and stick to the principle of "commercial operation" independent of the government.

"We will adopt a prudent accounting system ... adhere to commercial lines and improve the transparent on the condition that company interest will not be jeopardized."

The investment by the company will be long-term and aimed to maximize the returns from investment with acceptable risks.

It said it will focus its overseas investments mainly on portfolio of financial products.

The launch of the investment company is necessary, as the country has accumulated $1.41 trillion foreign exchange reserves, said Liu Xiahui, economist with the Chinese Academy of Social Sciences. But it will face major challenges, such as protectionism from foreign countries, he said.

"The political pressure from them will be huge," he said, pointing out that some countries may fear the huge fund will raise prices in overseas markets.

The company will abide by laws and regulations where it invests as well as international practice, Lou said.