China Investment chief to Canada: Fear not

BEIJING — The Globe and Mail

A worker walks past steel wire rod coils at a construction site in China (STRINGER SHANGHAI)

Gao Xiqing, the president of China Investment Corp., the country's sovereign wealth fund, would like the world to know there's no such thing as "China Inc."

It's one of the myths about the country that is fuelling political resistance towards CIC in the West, something that is frustrating to Mr. Gao, whose $330-billion (U.S.) fund has become one of the world's most influential investment organizations.

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"They think everyone in China bands together," he said in an exclusive interview with The Globe and Mail in his Beijing office. The truth is very different, he said: The idea that CIC and the country's state-owned enterprises function as one coherent whole in a global pursuit of natural resources is simply wrong.

CIC has no desire to join Sinochem Group in trying to put together a takeover bid for Potash Corp. of Saskatchewan Inc., for example - though the fund's staff "love Canada" and CIC is considering opening a Canadian office, Mr. Gao said.

"We often get approached by these people, by state-owned enterprises, that say 'Maybe you can look at this,' " Mr. Gao said. "After a few tries, we decided it's very difficult to team up with these strategic investors because it makes a lot of sense for them to take control of some of the resources and try to guarantee the supply to them for as low a price as possible.

"For us, it's just the opposite. We need to have the supply of resources at as high a price as possible, because we need to make money."

CIC, founded in September, 2007, as a state-owned company that was designed to diversify China's foreign exchange holdings and improve the returns on its investments, is inundated with proposals from bankers, private equity firms and corporations.





Many of the so-called Canadian resource companies are really not Canadian anymore. Gao Xiqing




Governments in developed countries, on the other hand, are not always so keen to see the fund's staff.

In at least one instance, CIC has been told that a bid for a company that was being privatized in Europe would not be accepted if it was part of the consortium.

"The world is becoming a lot smaller, a lot more crowded. When you get crowded, you have a stronger sense of needing to protect yourself, that I know," said Mr. Gao, whose prior positions include deputy chairman of the National Council for the Social Security Fund and CEO of the Bank of China International (Holdings) Ltd.

"We Love Canada"

That resistance is one of the reasons why the fund is increasingly turning its sights to opportunities in emerging markets, and Canada.

"We love Canada for several reasons," Mr. Gao said. "The Canadian government over all is a lot more welcoming than most other governments in the developed world."

Mr. Gao, who has become friends with a who's who of Bay Street leaders, has read articles about Canadians who are concerned about China taking over the country's resources after its numerous investments in the oil and mining sectors, including a major equity stake in Teck Resources Inc., one of the largest Canadian-headquartered mining companies.

"But most of the time we hear from the various governments that it's really of benefit to the Canadian people for us to co-operate," he said. "So, because of that, we've made more investments in Canada than in most other markets."



Not An Activist Investor

Donning a short-sleeved button-down shirt, glasses and a gracious smile, Mr. Gao is an unimposing figure. His office is perched in New Poly Plaza, a modern structure of glass and natural light, but his traditional d├ęcor and cluttered bookshelf are practical rather than impressive.

In the no-frills room, it's easy to forget that Mr. Gao is one of the most important people in China, and a powerhouse on the global stage.

He repeatedly stresses that CIC's motivator is profits, not national interest. Roughly one-quarter of CIC's 400 staff are investment professionals.







Mr. Gao's message is that the fund doesn't have the resources to be an activist investor even if it wanted to. CIC has other ways of deriving extra value from its investments. After putting $1.5-billion into Vancouver-based Teck in the summer of 2009, the sovereign wealth fund helped to open some doors to Chinese customers for the company.

Teck

By the end of 2009, CIC's stake in Teck was worth $3.5-billion, making it its largest single equity holding.

"We regard Teck as a very important strategic partnership," Mr. Gao said. "They help us a lot, whenever we have questions about resources in any part of the world or about things in Canada, we will ask them."

In addition to direct investments in Canadian companies such as Teck and Penn West Energy Trust, CIC has through its proprietary traders purchased small stakes in Kinross Gold Corp. and Potash Corp.

More involvement by CIC in the Canadian resource sector could be a healthy way for Canada to decrease its reliance on the United States, Mr. Gao suggested.

"Many of the so-called Canadian resource companies are really not Canadian anymore," he said. "I think for us to go in and buy part of it is good for Canadians, you don't want to be totally dependent on one country. And we're not going to take over anything, so our getting in is just diversification for the economy."

The fund is looking at a number of opportunities, both inside and outside the resource sector. "There are many more possibilities in Canada, we are looking at a lot of different things with great interest."

Potash

Those clearly stretch beyond potash, which all eyes are focused on at the moment. Mr. Gao understands as much as anyone the desire for China to ensure its supply of resources, such as potash, which contributes to food security.

"I myself, I was in the mountains building a railroad when I was very young," he said. "I was hungry for four or five years, every day and for every meal. So I certainly know what famine feels like.

"But for us, as a financial investor, we have to look at the numbers. We can't say, 'One hundred years from now this will be good for the Chinese nation.' That's not our mandate."

Beyond Canada, CIC is placing a new emphasis on emerging countries. That's partly because of the resistance it has faced from many developed nations.

"But the bigger part is really the fundamentals," Mr. Gao said, noting that capital markets have not kept pace with economic growth in the emerging world.

______

GAO XIQING

Title: Vice-chairman, president and chief investment officer, China Investment Corp.

Personal: Born September, 1953, a native of Shaanxi province. His father was a Red Army officer who took part in Mao's Long March.

Education:

BA (1978) and master of law (1981), University of International Business and Economics, Beijing.

Law degree (1986) from Duke University, North Carolina. Is currently a member of Duke's board of trustees.

Career:

1986-88: Associate with New York law firm, Mudge Rose Guthrie Alexander & Ferdon.

1992-95: Director of public offerings, China Securities Regulatory Commission.

1997-99: Deputy chairman and CEO, Bank of China (Holdings) Ltd.

1999-2003: Deputy chairman of China Securities Regulatory Commission.

2003-07: Vice-chairman, National Council of the Social Security Fund.

2007: Named president of newly created CIC.

Staff

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