BEIJING--The invisible man behind China's $3.8 trillion foreign
cash hoard is disappearing.
Zhu Changhong, a former star bond trader in the U.S. who was
recruited by Chinese officials about four years ago from investment
firm Pimco to manage the country's massive foreign-exchange
reserves, resigned unexpectedly, officials said Tuesday. The move
comes as China grapples with boosting returns at a time of
increased turbulence in global markets.
In a statement to The Wall Street Journal, China's State
Administration of Foreign Exchange, the division of the central
bank that manages the currency reserves, said the 44-year-old Mr.
Zhu is set to wrap up his mission at the agency at the end of the
month.
His departure was made "according to plan," the statement said,
while adding that Mr. Zhu played "an important and outstanding
role" in managing the reserves.
SAFE press officials declined to comment beyond the statement.
Mr. Zhu, whose title was chief investment officer, declined to
comment and referred questions to SAFE.
The agency doesn't disclose returns. But Mr. Zhu won praise
inside and outside the agency for persuading his superiors to
invest more in U.S. corporate bonds, equities and real estate,
rather than relying on the safe-but-dull investments in U.S.
Treasurys that were SAFE's hallmark. Outside the agency, he was
dubbed "the invisible man" by China's media for his unwillingness
to appear in public or have his pictures taken.
"Zhu's departure is a big loss to SAFE, and to China," says Peng
Junming, a former SAFE official who runs his own investment firm,
Empire Capital Management.
It isn't clear why Mr. Zhu left. But people familiar with his
work at SAFE said he had trouble navigating internal politics at
the secretive Chinese government agency. His two decades in the
U.S. was held against him by some colleagues who felt slighted that
he was given such a plum position without having to work his way
through the Chinese hierarchy, they said.
"Zhu's performance was viewed positively, but there was always
some doubt over whether he would fit in longer term," said a
Chinese government official.
Not all those with long U.S. experience have had similar
problems. SAFE's chief, Yi Gang, taught for years at Indiana
University.
Mr. Zhu was the right-hand man to investor Bill Gross at Allianz
SE's Pacific Investment Management Co., or Pimco, before Chinese
officials recruited him to SAFE in late 2009. SAFE manages the
foreign currency China's central bank buys to control the value of
the yuan.
While at SAFE, Mr. Zhu convinced the agency to bet on Japanese
equities in the second half of 2012 before they rose sharply, said
individuals familiar with his work, though the size of the position
wasn't clear. He also boosted SAFE's investments in European debt
when many other investors were wary of its riskiness, the people
said.
In June 2010, just after Mr. Zhu started at SAFE, about 45% of
China's reserves, or $1.11 trillion, were invested in U.S.
government bonds, according to an analysis by ChinaScope Financial,
a financial data provider. Since then, China's overall purchases of
U.S. debt increased, but Mr. Zhu steadily helped reduce the
percentage devoted to Treasurys to about 35%, or $1.29 trillion, in
September 2013, the most recent figures available.
It isn't clear what Mr. Zhu plans to do next. SAFE officials
said the agency's policy forbids ex-employees in certain positions
from competing with SAFE for a certain period.
His successor will face a quickly changing landscape. The U.S.
Federal Reserve is expected to continue tapering bond purchases to
stimulate the U.S. economy and perhaps to start to raise interest
rates. Economists say those actions should help boost the value of
the dollar and make U.S. assets more attractive.
Many emerging economies view the Fed's actions with alarm
because they fear they would lose the investments needed to pay off
their foreign debts. In recent weeks, currencies in many developing
countries including Argentina, Brazil and Indonesia have fallen,
and markets have sunk in part because of fears those economies
could get hit.
With its vast reserves and largely closed financial system,
China is in a different situation. SAFE welcomes the Fed action,
central bank advisers said, because it might reduce the buildup of
China's foreign-currency holdings. For years, China has invested
most of its reserves in dollars and seen the value of its holdings
sink as the dollar loses its value against the yuan.
Mr. Yi, the SAFE chief, has argued publicly that China should
take a number of steps to slow the growth of China's foreign
reserves or even to reduce them. Those steps include allowing the
market a bigger role in determining China's exchange rate, rather
than having the central bank intervene regularly to slow its
appreciation, and making it easier for Chinese citizens to invest
overseas and for foreign capital to come in.
If China were to fully open up the so-called capital account,
economists at the International Monetary Fund estimate, the overall
result would be a net outflow of $1 trillion to $1.6 trillion.
But Mr. Yi has yet to convince the leadership to take such
steps. Standard Chartered estimates that China's reserves will grow
another $400 billion in 2014 largely because it expects the
country's trade surpluses to widen.
Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at
bob.davis@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires