By Lingling Wei
BEIJING--China's sovereign-wealth fund has started investing in the U.S. manufacturing sector through a joint venture with Goldman Sachs Group Inc., but warned it would be more cautious about the American market because of the trade war.
The multibillion-dollar fund, formed nearly two years ago by China Investment Corp. and Goldman primarily to invest in U.S. industrial firms, made its first investment recently, CIC executives said Friday.
The venture, called the China-U.S. Industrial Cooperation Fund, was one of a number of deals announced during President Trump's visit to Beijing in November 2017. They were presented as proof of progress in a trade relationship that Mr. Trump has criticized as favoring China.
By collaborating with a top Wall Street firm, CIC had hoped to diminish the chances its investments would be blocked in the U.S.
In the roughly two years since, however, the intensifying trade fight between Washington and Beijing has made it harder for the China fund to invest in the U.S. and derailed many of the deals pledged during Mr. Trump's trip to Beijing, including planned purchases of U.S. natural gas by Chinese state-run enterprises.
The CIC-Goldman partnership has managed to push forward, albeit at a slow pace. CIC declined to disclose details on the investment.
Following two months of ratcheting up tariffs by both the U.S. and China, the two sides recently agreed to restart formal negotiations. On Thursday, deputy-level negotiators on both sides resumed face-to-face talks in Washington, aimed at laying the ground work for higher-level talks scheduled for October. Chinese officials are hopeful meaningful progress can be made to de-escalate tensions, though expectations for a major breakthrough remain low.
At a press conference Friday, CIC President Ju Weimin said the trade war is causing the sovereign-wealth fund to be "more cautious about investing in the U.S."
In recent years, CIC has been casting an eager eye on U.S. manufacturing and infrastructure projects, seeking to generate steady long-term returns for the fund and acquire technological know-how for China. In return, CIC officials say the fund can serve as a stable source of long-term capital for U.S. projects.
CIC Chairman Peng Chun said the venture with Goldman Sachs has so far garnered $3 billion after three rounds of fundraising. It targets as much as $5 billion in capital.
But CIC, along with other Chinese investors, has complained about what China sees as an unfair review process by the Committee on Foreign Investment in the U.S., an interagency group known as Cfius, and called on U.S. authorities to improve the transparency of its reviews. "Chinese companies' investments overseas have been treated with prejudice," Mr. Peng said.
Friday's briefing was held to present CIC's financial performance for 2018. The Chinese country fund, one of the world's largest, posted a net loss of 2.35% last year on its overseas portfolio, which has more than $250 billion in assets, largely because of weak stock markets in the U.S. and other developed nations. U.S. equities made up more than 50% of the fund's equity holdings overseas last year.
Beijing formed CIC in 2007 to help diversify China's mammoth foreign-exchange reserves from U.S. Treasurys into other asset classes such as stocks, corporate bonds and private equity. In addition to that mandate, CIC also holds stakes in some 17 major Chinese banks and securities firms though a unit called Central Huijin. For instance, it owns more than 60% of Bank of China Ltd. and nearly 35% of the China Development Bank. As of the end of 2018, CIC had $940.6 billion in total assets.
In recent months, big state-owned banks such as the Industrial & Commercial Bank of China Ltd., in which CIC's Huijin unit holds a nearly 35% stake, have been helping regulators bail out small lenders struggling with rising bad debts. Market analysts are expecting the CIC unit to get more directly involved in rescuing some of the teetering financial institutions.
A major task for Central Huijin right now, Mr. Peng said, is to help resolve financial risks as China's economy comes under growing pressure. He didn't elaborate.
Grace Zhu contributed to this article.
Write to Lingling Wei at email@example.com