Left Flank

PRC's Wei Benhua, vice head of the State Administration of Foreign Exchange, sent a shot across the bow.

"The international society should take a clear-cut stand against protectionism in various forms in both investments and the financial sector," Wei wrote.

He said sovereign wealth funds should boost their transparency but cautioned against haste in doing so, saying this could lead to market panics.

Wei said the CIC would respect all laws in countries in which it invests and actively participate in global discussions to ensure that regulations covering sovereign wealth funds benefit its own development.

Does Wei mean Safe Investment Company?

It is a direct subsidiary of Safe, the government department that regulates foreign exchange transactions and also manages China's nearly $1,500bn in foreign exchange reserves.

But the entity is so secret that Safe repeatedly refused to acknowledge its existence to the FT, until it was confronted with incontrovertible evidence.

China's central bank, which ultimately controls Safe, told the FT that Safe Investments was set up just one month before the hand-over of Hong Kong from Great Britain to China in 1997 to «support and promote the development of Hong Kong's financial market» and served a crucial role in defending the value of the Renminbi and Hong Kong's peg to the US dollar against international speculators.

According to people familiar with Safe Investment's operations, it served largely as a minor outpost for Safe in the years following the Asian financial crisis, with only about $20bn in funds under management.

But the amount under management at Safe outposts has increased substantially, according to one person familiar with its operations.

«Safe's subsidiaries around the world have until now been responsible for running Safe's book over the various time zones and have basically replicated the portfolio of head office in Beijing but that appears to be changing with the Hong Kong subsidiary taking more risk in managing reserves,» the person said.

Safe's main office in Beijing manages portfolios of fixed income securities such as Treasury bonds, currencies and commodities, according to a person familiar with its operations, who said it is common for Safe to execute trades of up to $1bn at a time.

Analysts say internal politics may account for Safe diversifying away from its previous mandate of low-risk liquid securities, albeit on a relatively small and carefully concealed scale.

«This shows characteristics of a Chinese bureaucratic rivalry,» according to Arthur Kroeber, managing director of Dragonomics, an independent research firm. «It might be that, having been forced to surrender control of Huijin to CIC, Safe and the central bank are now lobbying for authority to make alternative investments on their own account.»

Oh, yes, transparency!