November 29, 2007 (LPAC)--The China Investment Corporation, the fund set up to invest $200 billion of the $1.4 trillion in Chinese reserves, has shifted gears, and will now invest primarily in domestic areas, rather than overseas, according to a NYT article reporting from a source that is "familiar with the company's decision making." The Corporation, which put $3 billion into the private equity fund Blackstone in June, will henceforth devote two-thirds of its funds to "assisting Chinese banks" and other domestic investment. About one-third will go into the two major state banks, the Agricultural Bank and the China Development Bank. Another third will buy the Central Huijin Investment Company, now part of the central bank, thus developing internal infrastructure, industry and agriculture rather than investing abroad.

The $70 billion which is still targeted to go into foreign investments will not take any large stakes in major firms, but will make "many small purchases of equities, bonds and other investments," the source said. They will not consider, for example, a stake in Citi Group, Rio Tinto or any such "big-ticket items," and will avoid airlines, telecom, and oil, as "potentially contentious" politically.

It may be that the loss of $1 billion of the $3 billion investment in Blackstone has played a role in this decision as well.