China starts $21.8 billion offshore fund amid currency concerns

BEIJING (Reuters) - China's central government has launched a 150 billion yuan ($21.79 billion) fund designed to support investments offshore by Chinese companies as well as the country's so-called new Silk Road initiative.

The first phase of the Guotong Fund, capitalized at 70 billion yuan, was registered on Nov. 25 in Hangzhou, according to a statement posted Wednesday on the website of the State-owned Assets Supervision and Administration Commission (SASAC).

The statement cited equipment manufacturing as one type of offshore investment the fund might support, and said the new vehicle might take a role in mergers.

Announcement of the fund comes as Chinese regulators tighten restrictions on foreign exchange transactions and outflows amid growing concern that offshore currency movement is adding pressure on the weakening yuan currency.

On Tuesday, officials from the National Development and Reform Commission, the Ministry of Commerce, the People's Bank of China, and the State Administration of Foreign Exchange said that authorities will prevent risks from outbound investment to help maintain a balance in international payments, according to the official Xinhua News Agency.

China Reform Holdings Corp., an investment firm established by the State Council under the supervision of SASAC, is managing the fund, according to the statement.

It said China Reform, along with 10 central state-owned enterprises, China Postal Savings Bank, five other financial institutions and Zhejiang State-owned Assets Management Co, established the Guotong Fund.

China's new Silk Road initiative, also known as the "One Belt, One Road" program, aims to open new trade and investment markets for firms as the domestic market slows.

The program aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe.

($1 = 6.8826 Chinese yuan)

(Reporting by Matthew Miller; Editing by Richard Borsuk)