BEIJING, Oct 16 China Investment Corp, the country's new $ 200 billion sovereign wealth f

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BEIJING, Oct 16 (Reuters) China Investment Corp, the country's new $200 billion sovereign wealth fund, will aim for transparency in its operations and will not be a destabilising force in global markets, the firm's head said on Tuesday.

Lou Jiwei said CIC, launched two weeks ago, had parked its initial capital in money markets and could get more foreign exchange reserves to manage if its investments performed well, a view echoed by central bank governor Zhou Xiaochuan.

Lou said CIC was open to investing around the world, including in Hong Kong and Taiwan, but he scotched speculation it had already bought Hong Kong stocks.

He reaffirmed that CIC's investment strategy would be commercially driven and not politically motivated.

Politicians in a number of Western countries have expressed concern that foreign governments could use their sovereign wealth funds to accumulate stakes in strategic industries. Some have called for controls on the activity of the funds.

But Lou said China had studied more than 20 such funds and had found no wrongdoing on their part. This was because they were prudent in their investments and generally did not seek controlling stakes.

''In fact, sovereign wealth funds are a stabilising force in the international market,'' Lou said at a financial forum during the ruling Communist Party Congress.

Hedge funds, by contrast, were a source of market instability, Lou added.

China could entrust more of its $1.43 trillion in foreign exchange reserves with the CIC, estimated to be the world's fifth-biggest sovereign wealth fund, but only if it manages its investments well.

''If I'm making losses every day, how can I face asking the government for more money?'' Lou said.

FUELLING SPECULATION Because of CIC's sheer size, speculation was already engulfing the new fund, Lou said.

''For instance, we have not made any investments in Hong Kong, but there are rumours that we are buying Hong Kong stocks,'' he said.

Shares in Hong Kong Exchanges and Clearing Ltd jumped last month after the Times of London quoted bourse insiders as saying China might be secretly building a stake through CIC in the Hong Kong stock exchange operator.

Lou blamed speculators, including mainland mutual funds, for using talk of CIC purchases to push up Hong Kong stocks.

The Ministry of Finance has issued roughly $80 billion in special bonds thus far to fund CIC.

Lou said CIC had invested its initial capital in money markets but had already paid $67 billion to the State Administration of Foreign Exchange to buy Central Huijin, formerly the investment arm of the central bank.

CIC would be as transparent as any profit-driven institution could be and would keep lines of communication open with regulators in countries in which it invests as well as with international organisations, Lou said.

''The pressure on us is very great and so is the responsibility,'' Lou said.

He said CIC would be structured like other international investment funds and noted the importance it attached to sound corporate governance with a board of supervisors operating alongside the fund's main board of directors.

REUTERS DKS RS1134

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