Twenty-six sovereign wealth funds, including CIC, gathered in Santiago, the capital of Chile, during the first two days of September to discuss acceptance of the voluntary code.
The new framework will affect CIC’s relationship with its subsidiary, Central Huijin Investment Company. CIC’s own operation is commercialized, but Central Huijin still undertakes some policy responsibilities, such as injecting capital into state-owned banks. He Fanzeng, Assistant Director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, says that in the future SWFs would be more strictly supervised under multi-lateral guidelines and that CIC must be prepared for it.
The meeting CIC attended was the third working meeting of IMF’s International Working Group for SWFs. During the meeting, according to Thomson Reuters, the group "said�they had reached a preliminary agreement on a set of voluntary principles to guide their investment practices and to calm fears about their motives." The IMF said the code of conduct, details of which have not been released, covering legal framework, corporate management and structure, investment strategy and risk management, aimed to guide SWFs�investment.
This meeting was aimed at reaching an understanding on Generally Accepted Principles and Practices (GAPP) for SWFs so they could be presented at the annual meeting of IMF and the World Bank, October 10-13.
GAPP will cost CIC some readjustment. Some SWFs have been around for many years and have accumulated a bit of international savvy, but CIC is a newcomer and will be restrained by these principles during the early stages of its operations.
IMF originally planned to formulate "best code of practices" for SWFs, but this was replaced with GAPP this year in March.
CIC refused to accept the earlier code. In April this year, CIC general manager Gao Xiqing said in an interview on the CBS news program 60 Minutes that CIC would gradually increase its degree of transparency, but it was "unnecessary" and even "stupid" to formulate an international code for SWFs.
In May, CIC chairman Lou Jiwei said a common code of conduct was much better than "best code of conduct", since there are many types of SWFs in countries of different political systems.
In early July, CIC was already involved in the formulation of the code, hoping the process would be fair, proper and open.
There are still disputes on whether "game rules" should be made for SWFs. At present, hedge funds and private equity companies are under no effective supervision and their investments tend to be much more speculative than those of SWFs. Which of these three poses greater hazards for international financial markets is a question for which there is as yet no answer.
IMF figures show SWF asset scale has shot up in the last 10 to 15 years, now totaling $2 trillion-$3 trillion, and is expected to grow to $6 trillion to $10 trillion within the next five years. The giants among global SWFs include those of China, Kuwait, Norway, Russia, Singapore, and the United Arab Emirates.
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