China's market-oriented operation of its foreign exchange reserves, the world's largest, made substantial progress with the inauguration of a long-awaited investment arm on September 29. Among the company's star-studded management team is Gao Xiqing, a former Wall Street lawyer, who is tasked with day-to-day investment decisions.

Gao has been designated as general manager of the China Investment Corp. Ltd. (CIC), the company announced in a statement. He is also an executive director of the company's board chaired by Lou Jiwei, Vice Secretary General of the State Council and former Vice Minister of Finance (see www.bjreview.com.cn).

The CIC, with a registered capital of $200 billion, will try to maximize the proceeds via long-term investment within a range of acceptable risks, said sources with the company. Against this background, Gao's familiarity with the capital market is supposed to have paved his way to the new post.

Gao, born in 1953, received his Ph.D in law at Duke University in 1986 and then practiced law in the Wall Street firm of Midge Rose until he returned to China in 1988. He was a key figure in the creation of China's stock market, drafting operational rules for both Shanghai and Shenzhen bourses. He served as chief lawyer and director of public offerings of the China Securities Regulatory Commission in 1992-95, and vice chairman of the commission in 1999-2002.

Now Gao is vice chairman of the National Council for Social Security Fund, which oversees China's pension reserves worth 400 billion yuan ($53.3 billion) at the end of June of this year. Since the fund's establishment in August 2000, its annual returns have averaged 3.89 percent, and hit 15.2 percent in the first half of 2007.

China's foreign exchange reserves had reached $1.33 trillion by the end of last June, most of which are invested in U.S. treasury notes, whose average annual returns, according to the Beijing-based Global Times, are less than 2 percent.

Given Gao's appointment, industry insiders predict that CIC is very likely to copy the social security fund's business mode of "entrusted investment" in its initial days of operation.

In June, the still embryonic CIC took a $3-billion stake in the second largest American private equity firm, Blackstone Group LP, its only deal so far.

"In tapping Mr. Gao, who was educated in the United States and has spent much of his career trying to reconcile Western financial ways with China's system, the Chinese Government is affirming the importance it attaches to the agency."

The Wall Street Journal, commenting on Gao Xiqing's appointment to the post of general manager of the newly established China Investment Corp. Ltd.

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Li Yang, Director of the Finance Research Center, the Chinese Academy of Social Sciences, who was an invited advisor for the establishment of the China Investment Corp. Ltd.

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