	Introduction

The Chinese government decided in 2007 to join a growing list of nations and create a sovereign wealth fund (SWF). In addition, one of the CIC's subsidiaries, the Central Huijin Investment Corporation (Central Huijin), made substantial investments in several larger Chinese banks and financial enterprises, which in turn, began to back outward foreign direct investment (FDI) and domestic investments by state-owned enterprises and private corporations. Although the CIC maintains that it is an institutional investor seeking to maximize its rate of return, some observers speculate that the CIC is operating as a vehicle for a Chinese government strategy to secure access and possibly control over resources necessary for China's growing economy. Some are concerned that China's expanding international holdings of energy and strategic resources may pose a risk to U.S. security. The CIC provided China with another avenue by which it could invest its growing foreign exchange reserves, which totaled $1.4 trillion as of September 2007, and which have continued to grow, standing at $2.45 trillion as of July 2010. The genesis of the CIC was apparently subject to political infighting among China's major financial institutions, with both China's central bank, the People's Bank of China (PBOC), and the Ministry of Finance vying for control over the new SWF. In the end, the CIC was placed directly under the control of the State Council, China's ruling executive body. According to the CIC's webpage, its mission "is to make long-term investments that maximize risk adjusted financial returns for the benefit of its shareholder [the State Council]." As a result, the CIC indirectly became a major stock holder in the China Construction Bank (CCB), the Industrial and Commercial Bank of China (ICBC), and other Chinese financial institutions. In 2009, the CIC's return on its total registered capital was 12.9% and its return on its global portfolio was 11.7%. In 2008, the return on capital was 6.8% and its global investments lost 2.1%. Based on its 2009 performance, the CIC has reportedly asked for an additional $200 billion in capital. First, just prior to and immediately after its establishment, the CIC focused its investments on financial institutions. Third, the CIC reactivated its investment activity starting in 2009, with a notable shift to investments in energy and natural resource companies. The apparent change has raised concerns about the commercial basis of CIC's investment strategy. According to a report submitted to the Securities and Exchange Commission (SEC) in February 2010, the CIC had holdings in 82 different U.S. entities as of December 31, 2009, with a total worth of $9.627 billion. Investments by Central Huijin

Although Central Huijin is a wholly owned subsidiary of the CIC, according to its website, "the investment business of [the] CIC and the share management function conducted on behalf of the State Council by Central Huijin are completely separated." If the two investment agencies were separated, it was expected that the CIC would remain primarily an investor in overseas assets, while Central Huijin would become an administrator of state-owned financial assets—such as the Agricultural Bank of China, the Bank of China, the China Construction Bank, the China Development Bank, and the Industrial and Commercial Bank of China. Concerns About the CIC

The recent investment activities of the CIC and its subsidiary, Central Huijin, have raised concerns among some financial analysts. However, some analysts have suggested that the recent changes do not adequately protect the United States from economic risks posed by SWFs and/or inward FDI from China. Among the regulatory changes that have been suggested are:
Requirements that any SWF interested in investing in the United States publicly release audited financial statements that follow international accounting standards on a regular basis; Restrictions on the percentage of a U.S. company that an SWF may own (other governments have such limits; for example, Hong Kong authorities have said they may withdraw the authority of Standard Chartered Bank to issue Hong Kong currency if the share of its stock owned by a Singaporean SWF exceeds 20%); Restrictions on the type of investment SWFs may make in U.S. companies—alternatives include restricting SWFs to the purchase of nonvoting shares, banning SWFs from negotiating a seat on the company's board of directors or representation in the company's senior management; and Changes in U.S. tax code—under current U.S. law, the profits of SWFs are generally tax-exempt; it has been suggested that the tax-exemption for SWFs be eliminated or restricted. In addition, policy analysts have suggested that access to U.S. financial markets should be contingent on the successful conclusion of a reciprocity agreement that would allow U.S. banks and financial institutions comparable access to the other nation's investment and financial markets.
China's ruling executive body, the State Council, established the China Investment Corporation (CIC), a sovereign wealth fund, in September 2007 to invest $200 billion of China's then $1.4 trillion in foreign exchange reserves. As with other sovereign wealth funds worldwide, the CIC's existence allows China to invest its reserves in a wide range of assets, including stocks, bonds, and hedge funds. After a rocky start in which it incurred losses of 2.1% on its global investments in 2008 – caused in part by aftereffects of the global financial crisis of 2007 – the CIC's rate of return in 2009 rose to 11.7%. The State Council is reportedly considering a CIC request for an additional $200 billion out of China's $2.5 trillion in foreign exchange reserves.
Congress and financial analysts raised concerns about the CIC after its creation, partly because it was a comparatively large sovereign wealth fund, partly because it was government-owned, and partly because it reported directly to the State Council. Some observers were apprehensive that the Chinese government would use the CIC to acquire control over strategically important natural resources, obtain access to sensitive technology, and/or disrupt international financial markets. The CIC attempted to counter these concerns by announcing that its investment strategy would conform to international standards, and sought only to maximize its "risk-adjusted financial return." The CIC also promised to avoid politically and strategically sensitive investments.
The CIC has been the focus of discussions among China's leadership about its economic objectives and its organizational structure. Soon after its creation, the CIC became the sole owner of Central Huijin Investment Limited (Central Huijin), an investment fund established by China's central bank, the People's Bank of China (PBOC), as a vehicle for injecting capital into major Chinese banks. Over the last three years, Central Huijin has provided billions of dollars to the Bank of China (BOC), the China Construction Bank (CCB), the Industrial and Commercial Bank of China (ICBC), and other financial institutions. Some analysts maintain that there is an inherent conflict between the CIC's goal to maximize its return on investments and Central Huijin's mission to provide capital to domestic financial institutions, and advocate their separation. While there have been reports of a possible separation, Central Huijin remains a subsidiary of the CIC.
Concerns about the CIC's investment activities reemerged in 2009 when it greatly expanded its overseas holdings, and began acquiring stakes in energy companies, natural resource companies and alternative energy companies. According to its filings with the Security and Exchange Commission (SEC), the CIC had holdings in 82 U.S. entities as of December 31, 2009. Commentators once again questioned the true goals of the CIC's investment strategy. The CIC maintains that its main mission is to maximize its long-term, risk-adjusted rate of return.
For Congress, the investment activities of the CIC and its subsidiary, Central Huijin, raise questions about U.S. policies on inward foreign direct investment (FDI) and the global competitiveness of U.S. financial institutions. Some question if the current controls on inward FDI via the Committee on Foreign Investment in the United States, SEC, and other agencies provide adequate protection of U.S. strategic assets and technology from investments by the CIC and other Chinese entities. Others are concerned that Central Huijin's assistance to Chinese banks and financial institutions are part of a larger strategy to increase China's influence in strategic markets. These commentators suggest that more should be done to protect the United States from China's rising role in international capital markets.
This report will not be updated.