China Investment Corporation, the world’s fourth largest sovereign wealth fund, has been accused by the country’s top auditor of mismanagement, dereliction of duty and poor due diligence just seven years after its inception.
The National Audit Office said CIC – an investor in big US financial institutions such as Blackstone and Morgan Stanley – had incurred unquantified losses on overseas investments due to this mismanagement.
CIC, which has $650bn in assets under management, has made $200bn in investments around the world since it was set up in 2007 to earn higher returns on the country’s burgeoning foreign exchange reserves. In Britain it has taken stakes in high-profile assets such as London’s Canary Wharf.
The auditor did not specify the size of CIC’s losses or which overseas investments had problems. It also refused to reveal the scope of its investigation when asked by the Financial Times.
However, the report found that between 2008 and 2013, CIC made 12 overseas investments that faced losses or potential losses because of “dereliction of duty, inadequate due diligence, a lack of post-investment management and other problems”.
Some other investments suffered from irregularities in the hiring of external managers.
One senior financial official familiar with the matter said that the fund’s internal management was in a mess and many of its investments were likely to run into difficulties because of mismanagement.
The auditor said it had passed evidence of suspected crimes and violations of Communist party discipline at CIC to “relevant departments” for further investigation. This will not necessarily lead to an official inquiry, however. The auditor conducts numerous investigations each year and often finds legal and regulatory violations that are never mentioned again.
The auditor yesterday also found that Bank of China and Agricultural Development Bank, a state lender tasked with supporting Beijing’s rural development policies, had issued billions of renminbi of “irregular” loans.
The report is only supposed to cover the year 2012 and will not be seen as an indictment of the CIC’s chairman, Ding Xuedong, who took over a year ago.
However, it could prove em-barrassing to Lou Jiwei, China’s reformist finance minister, who was the fund’s chairman from 2007 until last March.
CIC did not respond to re-quests for comment yesterday.
The report was more specific about problems discovered in CIC’s domestic operations. It scolded several Chinese financial institutions owned by the fund for concentrating on real estate investments in violation of government directives.
It also said CIC’s main domestic subsidiary lost Rmb1.26bn in potential investment gains in 2011 by selling its holding in a Chinese securities company at cost price without conducting an asset appraisal.
审计署昨天还发现，中国银行(Bank of China)和中国农业发展银行(Agricultural Development Bank of China)“违规”发放了数十亿人民币的贷款。国有的中国农业发展银行负有支持政府的农村发展政策的使命。