China Central Bank to Create $300 Billion Investment Fund

The People's Bank of China announced that it plans to create an investment fund to manage $300 billion worth of foreign exchange reserves in more aggressive investments and largely internationally.  According to Reuters the fund would invest in the US via the Hua Mei fund, and Europe via the Hua Ou fund.  It is understood that the fund has been under development for some time, and will seek to invest in real assets and company shares, rather than government securities such as US treasuries.  

The fund will operate alongside the State Administration of Foreign Exchange (SAFE), and separately from China's sovereign wealth fund; China Investment Corp (CIC).  The recent IMF Financial System Stability Assessment provides an overview of China's key financial institutions and structure.

The People's Bank of China also made headlines earlier this month when it reduced the RRR by 50 basis points; the PBoC last raised the reserve requirements by 50 basis points in June this year.  Meanwhile the People's Bank of China last raised the benchmark interest rate 25bps to 6.56% in early July this year.  

The Bank for International Settlements recently published a paper on 'China's Evolving Reserve Requirements' which provides an interesting and detailed analysis of the People's Bank of China's use of the required reserve ratio as a tool for monetary policy.

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