China builds new wealth fund
The State Administration of Foreign Exchange (SAFE), the government body responsible for managing China's vast foreign reserves, said on Monday it had established a new investment body, SAFE Co-Financing, and would seek alternative investment channels for China's cash pile.
The establishment of the fund is part of Beijing's broader strategy of diversifying its large foreign exchange holdings, which have been largely invested in low-yield US Treasury bonds.
On Monday, the administration said it would manage the reserve more "innovatively" and use it to "support financial institutions lending to the real economy and [the] national policy of going abroad [supporting companies investing overseas]".
The move is aimed at providing a "better financing environment for Chinese financial institutions and other participants in the foreign exchange markets [companies trading and investing overseas] through supplying funds to the market."
Given China's demand for resources, Australia has been a primary beneficiary of Beijing's diversification push and it has ranked as one of the top destinations for foreign investment. China's investments here range from stakes in listed companies to infrastructure.
The establishment of SAFE Co-Financing was hinted at by the outgoing governor of the Chinese central bank, Zhou Xiaochuan, more than 18 months ago, when he said not all eggs should be put in the one basket, according to Caixin Media, a Chinese financial publication.
In the past, Beijing created several sovereign wealth funds - including China Investment Corporation and SAFE Investment Company Ltd - to invest some of its foreign reserves on international markets.
These sovereign wealth funds have largely "farmed out" the management of their cash to foreign investment banks, fund managers and private equity firms, including Australian institutions. China Investment Corp has a $500 million Australian-managed resources fund.
However, SAFE Co-Financing will largely dispense its money through Chinese financial institutions to support companies investing overseas, according to Caixin.
The China Development Bank, a large lender to Australian resources projects with Chinese interests, is expected to be a beneficiary of the new investment vehicle. It is estimated SAFE has provided more than two-thirds of the China Development Bank's $250 billion in funding.
However, the Chinese authorities made it clear the fund would only invest in safe projects, which will preserve the value of its capital.
The deputy governor of the Chinese central bank and the head of SAFE, Yi Gan, warned Chinese companies investing abroad must be subject to the rigour of strict cost assessment, and added highly leveraged projects could spell disaster, in an article he wrote for a financial publication.
CHINA’S WEALTH FUNDS
SAFE INVESTMENT COMPANY
Total Assets: $US3.2 trillion
Investments: Mostly US Treasuries, foreign direct investment and shares.
CHINA INVESTMENT CORP
Total Assets: $US410 billion
Investments: Equities, bonds, real estate, commodities and infrastructure
Frequently Asked Questions about this Article…
SAFE Co-Financing is a new investment body set up by the State Administration of Foreign Exchange (SAFE) to use parts of China's roughly US$3.2 trillion in foreign reserves more 'innovatively.' According to the announcement, the vehicle is designed to diversify away from low-yield holdings like US Treasuries, support Chinese financial institutions and lending to the real economy, and back the national policy of companies investing overseas.
The article says the move is likely to channel billions of dollars into Australia. Given China's demand for resources, Australia has been a primary beneficiary of Beijing's diversification push—Chinese investment in Australia ranges from stakes in listed companies to infrastructure—so Australian resource and infrastructure projects could see increased financing.
The article notes SAFE Co-Financing will largely provide money through Chinese financial institutions to support companies investing overseas rather than necessarily making direct equity purchases itself. While previous Chinese sovereign funds have farmed out money to foreign managers (including Australian institutions), this new vehicle is expected to channel capital via Chinese banks and lenders.
Chinese authorities have made clear the fund will focus on 'safe' projects that preserve capital. SAFE's leadership has stressed strict cost assessment for overseas investments and warned against highly leveraged deals, indicating a conservative approach that favors lower‑risk, well‑underwritten projects.
The China Development Bank is specifically mentioned as an expected beneficiary. The article notes SAFE has already provided a large share of the China Development Bank's funding and that the new vehicle will supply funds through Chinese financial institutions, which could boost lenders involved in overseas resource and infrastructure financing.
The article places SAFE Co-Financing alongside existing state-backed investors. SAFE (the wider reserves) totals about US$3.2 trillion, while China Investment Corporation has about US$410 billion in assets. Previous funds have invested in equities, bonds, real estate, commodities and infrastructure and often outsourced management to foreign investment banks and fund managers.
From the article's details, the fund is intended to be conservative—investing in safe projects and requiring strict cost assessments. That suggests official aims to preserve capital rather than pursue high‑risk, highly leveraged opportunities. For everyday investors, this may mean steadier, policy‑driven flows into sectors like resources and infrastructure rather than volatile, speculative bets.
Yes. The fund is part of a broader strategy to diversify China's large foreign exchange holdings away from mainly US Treasuries and toward alternative investment channels. The administration said it would supply funds to the market to create a better financing environment, which could shift more Chinese capital into overseas lending, resource projects and infrastructure—especially in destinations like Australia.
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