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By: Henry T. Chou, Esq.

The China Investment Corporation (CIC), a sovereign wealth fund responsible for managing the foreign exchange reserves of the People’s Republic of China (PRC), recently declared that it will seek to diversify its holdings by investing directly in infrastructure projects in the United States.

The PRC has invested two-thirds of its reserves in U.S. dollars, mostly U.S. treasury bonds and agency bonds, totaling U.S. $2.5 trillion. In response to the devaluation of the dollar, the PRC sought a better return by creating the CIC in 2007 to invest in enterprises across the world. Over the past four years, the CIC has limited its investments mostly to smaller equities in publicly traded companies, but its recent announcement signals a dramatic shift in investment strategy.

According to its Chairman and CEO, Lou Jiwei, “China is keen to get involved” in improving U.S. infrastructure, which “badly needs more investment.” He cited energy, water, transportation, digital communications and waste disposal as potential investment opportunities.  This strategy comports with the PRC’s goal of encouraging Chinese companies to invest aboard to diversify an economy that has traditionally relied heavily on exports and investment.

Economists surmise that the CIC’s interest in infrastructure probably reflects its own commercial views, rather than those of the PRC government. In particular, investments in infrastructure could help CIC earn a more stable profit and reduce China’s exposure to U.S. and European government bonds amid their sovereign debt crises.

It remains to be seen how the CIC will actually implement its plan in the United States. While many areas of infrastructure, such as energy and digital communications, are in the private sector, other major areas, such as transportation and water, are publicly-owned and operated.

Whether the CIC or other Chinese enteprises seek to invest in private or public projects, they will undoubtedly face regulatory hurdles that require the assistance of local counsel familiar with municipal, county, state and federal regulations in the United States. Hill Wallack LLP has represented Chinese investors in renewable energy projects and has experience in conducting extensive due diligence associated with the development of a large natural gas power plant in New Jersey. We stand ready to assist foreign entities seeking to invest directly in U.S. infrastructure projects.