Global financial professionals and the China Investment Corporation: Handmaidens to the global expansion of Chinese state-owned capital (by Imogen T. Liu and Adam D. Dixon)

The stock of Chinese foreign direct investment into the advanced capitalist economies has grown exponentially in the past decades, generating a large body of policy and popular discourse around the question of Chinese political influence in global financial markets. Scrutiny has almost exclusively fallen on the investment activities of Chinese sovereign wealth funds and state-owned enterprises, many of which number among the world’s largest corporate entities and where it is assumed that state-owned capital is invested according to the political imperatives of the ultimate sponsor, the Chinese party state.

What has been overlooked is the role of global finance as practised by the professions of investment banking, corporate law and management consulting among other advanced business services in integrating Chinese state-owned capital into global capital markets. In our article we use the case of the China Investment Corporation (CIC) to demonstrate how the growth of its global portfolio over the past 15 years has been predicated on the technical expertise of global financial professionals and their centrality in global financial networks underpinned by commercial imperatives to maximise return on investment.

The China Investment Corporation (CIC), China’s premier SWF, was originally mandated to diversify the country’s foreign exchange reserves, with US$ 1,047 billion under management year end 2019. It has been a politicised entity at home and abroad, and has been connected to state-owned investments in strategic industries such as energy, infrastructure and agriculture. Global financial professionals have effectively enabled the CIC to ‘speak’ the language of global finance and helped to legitimate Chinese state-owned capital in global markets such that it is treated no differently from private capital.

First, the CIC has adopted existing practices of insourcing top quality professional talent from the major centres of finance, such as managers from New York and London (NYLON) and graduates from an M7 (top-7) business school, as well as outsourcing specialist functions. Approximately 59% of CIC’s global portfolio is externally managed. Pro bono secondments from the leading investment banks including Morgan Stanley, UBS and Merrill Lynch were particularly common in the early years of establishment.

Second, the CIC has gained market credibility by association. Alliance formation through fund partnerships, the opening of subsidiary offices in key financial centres and attending industry conferences including the Institutional Investors Roundtable has been a way to bring about reputational benefits through network formation with institutions already central within global financial networks. CIC has partnered with top tier institutional investors such as Goldman Sachs and Blackstone and name-brand private equity firms such as KKR and TPG.

Third, these practices have aided the re-creation of existing financial practice such that they do not subvert the commercial imperative to generate return on investment, and yet allow the CIC to serve the political-strategic interests of the state. The CIC has established bilateral state-to-state investment funds such as with the Russia Direct Investment Fund that prioritises infrastructure investments, and actively supports the global infrastructure initiative that is the Belt and Road. The CIC has also established CIC Capital, a sub-branch specialising in direct, strategic and bilateral state-led partnerships which signifies a departure for the CIC from a strictly portfolio investment mandate and into the realm of strategic control, but in a way that allows it to distance the SWFs more politically driven investments from its public equity and fixed income portfolios. The CIC has sought to establish a CIC ecosystem in which it is not simply operating as a capital provider, but as a coordinator of state-owned capital at the nexus of global capital markets and the state. As a result, it is shaping global finance in a manner increasingly reflective of the developmental interests of the Chinese state.

Source: Liu. I.T. and Dixon. A. D. (2021) Legitimating State Capital: The Global Financial Professions and the Transnationalization of Chinese Sovereign Wealth (open access)

This post is based on work funded by the European Research Council-funded SWFsEUROPE project under the European Union’s Horizon 2020 research and innovation programme (grant agreement No. 758430).

Liu, I. T. and Dixon, A. D. (2021a) ‘SWFs in-depth. The great experiment: China Investment Corporation in Europe and beyond’, in Sovereign wealth funds 2020: fighting the pandemic, embracing change. Center for the Governance of Change. Available at:​

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