This story was printed from TODAYonline 
Monday • September 8, 2008
SINCE January, British blue-chip index, the FTSE100, has fallen nearly 19 per cent.
And while many investors, spooked by the looming economic gloom, have taken flight from equities, the People’s Bank of China, the country’s central bank and one of the most secretive in the world, has amassed an estimated £9 billion ($22.7 billion) worth of shares in British household names, including Cadbury, HSBC, Unilever, Marks & Spencer and Tesco.
The scale of the investments by Beijing’s State Administration of Foreign Exchange (SAFE), an arm of the People’s Bank of China, goes far beyond what was previously-known about Chinese state ownership of London-listed companies.
It also underlines the mandate that Chinese officials have been given to deploy large chunks of the country’s US$1.7 trillion ($2.4 trillion) of foreign exchange holdings, accumulated as a result of its booming export-led industries, around the world.
At £9 billion, SAFE is now thought to rank among the top 25 investors in the London stock market, underlining China’s status as a force in the global financial markets.
Many of the shareholdings are held through nominee accounts registered in locations including Hong Kong and are technically held by SAFE.
Such ownership of British stocks is nothing new. The Kuwait Investment Authority, and the investment fund of the Singapore Government are major shareholders in British companies.
Yet until now, it has been rare for overseas central banks to take direct stakes in large British companies. The sudden flurry of Chinese investments in the FTSE is raising questions about the motives behind the decision-making in Beijing.
“SAFE has been authorised to build stakes of up to 1 per cent in a long list of FTSE100 and some FTSE 250 companies, as well as some European companies,” said a person close to the Chinese government.
Is the sudden influx of Chinese money into Britain purely designed to find value in a declining stock market? And why are these shareholdings being acquired by arguably the most powerful central bank in the world rather than by funds created specifically for overseas investments?
China’s multi-billion pound entry into the United Kingdom stock market is being masterminded from close to home, in an unremarkable blue-glass building on the corner of London Wall and Moorgate, in the heart of the City. This is the office of SAFE.
Each month, its reserves go up by an estimated US$80 billion, giving the Chinese government the clout to buy a huge slice of UK public limited company, if it should choose to. Until recently, the workers inside 40 Basinghall Street have kept an almost invisible profile, avoiding the limelight and investing the reserves in low risk, liquid assets such as US Treasury bonds.
SAFE’s four international offices, in London, Hong Kong, New York and Singapore are some of the largest clients of fixed income desks across the globe but the organisation has been relatively unknown in general financial circles.
The offices are so secret that SAFE refuses to admit they exist, although a spokesman did confirm it has overseas investments. However, the sheer volume of money at SAFE’s disposal is making it difficult to pursue its low-key strategy.
“The scale of their assets is such that they can buy only so many government bonds,” said a Hong Kong-based banker. “If they started buying New Zealand bonds, they would soon end up owning the entire country.”
And as China’s economic growth begins to slow, albeit to levels still far in excess of Western countries, there is mounting public pressure to invest the country’s enormous assets shrewdly.
Earlier this year, Caijing, a reputable Beijing-based financial magazine, quoted an unnamed official declaring SAFE would move 5 per cent of its portfolio into shares.
The sum, US$85 billion, would make it one of the largest sovereign wealth funds in the world. It represents just over a month’s reserve accumulation for China.
The total is also greater than the US$70 billion to US$80 billion that the China Investment Corporation (CIC), the country’s official sovereign wealth fund, has at its disposal for international investments.
While the CIC has been behaving like a central bank, lending money to China’s domestic banks, SAFE has been behaving like a sovereign wealth fund in its foreign buying sprees.
SAFE has been at pains to play down its activities, buying only small stakes in Europe and avoiding US equities altogether, according to people familiar with its strategy. However, there is no denying that China’s investment army has arrived on British shores, and their £9-billion-splurge so far is just a hint of things to come. the dAILY TELEGRAPH