China Investment Wants to Stabilize Global Markets, Lou Says

China Investment Corp., the nation's $200 billion sovereign wealth fund, wants to stabilize financial markets, which have been rocked by subprime mortgage defaults.

"CIC wants to be a stabilizing force in the international capital markets," Chairman Lou Jiwei told a conference in Beijing today. He cited a "recent example" in which a sovereign wealth fund invested in a financial institution with subprime losses.

Abu Dhabi Investment Authority this week agreed to buy a $7.5 billion stake in Citigroup Inc., the biggest U.S. bank by assets. China Investment, which formally began operations in September, was set up to help improve returns on China's $1.4 trillion of reserves.

Banks, battered by credit losses and bad debts triggered by the mortgage market collapse, are becoming targets for sovereign funds. The MSCI World Finance Index has lost 11 percent this year, the worst performance among 10 industry group on the MSCI World Index.

Abu Dhabi's investment followed purchases by U.A.E. fund Dubai International Capital LLC in companies including London- based HSBC Holdings Plc, Europe's biggest bank by market value, and New York-based hedge fund Och-Ziff Capital Management LLC.

China Investment plans to set up overseas branches in major financial centers and will mainly invest in publicly traded securities. The fund must pay annual interest of 5 percent on its funds, making investments in long-term infrastructure projects "impossible," Lou said at a conference in Beijing.

"CIC's purpose is to achieve reasonable, longterm returns and also to improve the corporate governance of domestic banks," said Lou.

State-run investment funds will grow to $7.9 trillion in combined size from $1.9 trillion now as currency reserves keep accumulating in countries including China and Russia, Merrill Lynch economists wrote in a report last month.