Japanese firms wary of mystery 'China' funds

Two investment funds, believed to be Chinese, have become major shareholders in a number of large Japanese companies.

According to figures compiled by The Asahi Shimbun, the two funds have invested in at least 34 Japanese companies, and the total invested in those companies as of Aug. 20 was about 530 billion yen ($6.19 billion).

While the funds do not appear to be contemplating any sort of takeover bids, some companies are concerned about the growing presence of Chinese money.

An official with Sumitomo Metal Mining Co. said, "We are concerned about who are the actual shareholders behind the fund."

The official was referring to an investment fund known as SSBT OD05 Omnibus Account China Treaty Clients.

The fund began buying Sumitomo Metal Mining shares around 2008, and the fund was the company's ninth-largest shareholder with a 1.15-percent stake at the end of March.

So far, no one from the fund has contacted Sumitomo Metal Mining.

There is another fund with a similar name, and both began buying shares in companies listed on the Tokyo Stock Exchange's First Section around 2007.

Because both funds contain China in its name, Japanese market insiders refer to the two entities as China funds.

Since one of those funds emerged as the eighth-largest shareholder of Sony Corp. in that company's financial statement for fiscal 2007, the two funds have bought shares in a wide range of companies in such fields as finance, communications and pharmaceuticals.

In 2009, there were 11 companies in which one of the two funds emerged as one of the top 10 shareholders, but the number had increased to 34 companies at the end of March 2010.

Because companies outside the top 10 shareholders are not included in the financial statements of the listed company, there is the possibility that those two funds have invested in an even wider range of companies.

A report submitted by SSBT places its headquarters as Sydney.

However, not much is known about exactly where the money in the funds come from.

The agent in Japan for the fund is the Tokyo branch of the British bank HSBC Group. However, in response to an inquiry by The Asahi Shimbun, an HSBC official refused to comment, saying the bank could not provide "private information."

There is a consensus among market insiders that the money in the funds come from China.

One reason is that the Chinese government established a sovereign wealth fund named the China Investment Corp. (CIC) with capital of $200 billion in September 2007 to more aggressively invest in overseas markets.

That is about the time the two Chinese investment funds began expanding their portfolios.

One of the funds is the fifth-largest shareholder in Nitto Denko Corp.

Company officials checked into where the money in the fund came from and concluded there was a high possibility that the real shareholders in the fund were an investment body linked with the Chinese government.

However, company officials are not taking any defensive measures because they feel an acquisition is not the objective of the fund.

An official with NEC Corp. whose fourth-largest shareholder is one of the funds, said, "We are of the understanding it is a group of Chinese investors."

Jin Jianmin, a senior fellow at Fujitsu Research Institute who closely follows China, said, "In addition to CIC, Chinese government-affiliated investment bodies include a pension fund. These bodies are probably spreading around their investments in major companies around the world."

The stakes of both funds in any Japanese company are less than 2 percent, giving the impression that the major goal is pure investment.

Tsuyoshi Kawata, senior strategist at Nikko Cordial Securities Inc., said, "There is no goal of gaining control of management, so there is likely no need to excessively fear their presence."