Nov. 5, 2011, 9:59 a.m. EDT

China approves plan to split sovereign fund

SHANGHAI (MarketWatch) -- China's cabinet has approved a plan to separate the country's sovereign wealth fund China Investment Corp. from its wholly-owned unit Central Huijin Investment Ltd., the Economic Observer reported Saturday, citing unnamed sources.

The report said the government will establish a new entity, CIC International, to focus on overseas investment, and the ownership of the new entity will be shared among CIC, the finance ministry and the central bank.

After the restructuring, CIC will retain a controlling stake in Central Huijin, the state parent of China's major banks, the report said.

It is still unclear how much fresh capital the central government will inject into CIC after the sovereign fund has invested all of its initial $200 billion from China's foreign-exchange reserves in 2007, according to the report.

Bureaucratic infighting and debates over the proper role for CIC have held up the capital injection process, observers have said. One of the issues is whether Huijin's ownership of large stakes in state-run banks should be separated from CIC, they said.

China established CIC four years ago to improve returns on its swelling foreign-exchange reserves--currently $3.2 trillion and the world's largest--which had been invested in U.S. Treasurys and other low-yield sovereign debt.

CIC's assets totaled $410 billion at the end of last year. In 2010, CIC recorded an 11.7% return on its global portfolio, the same as that in 2009. It reported a net profit of $51.5 billion for last year, up from $41.7 billion in 2009.