The much hyped State investment company set to be launched faces multiple challenges ranging from establishing transparent management under laws as yet to be written to showing solid financial gains.

Zhou Xiaochuan, governor of the People's Bank of China the central bank revealed during the National People's Congress session that policymakers are tapping new channels to expand the investment scope of the country's huge foreign exchange reserve.

Hu Xiaolian, head of the State Administration of Foreign Exchange (SAFE), also said that the State investment company will be established this year, although details are yet to hammered out.

The new company is expected to be under the direction of the State Council, China's Cabinet, while professional managers will handle the reserve fund.

Most of the world's state foreign exchange investment companies, such as Singapore's Temasek Holdings, have had only a limited scale of investment funds.

In contrast, in China, even if the company's initial fund is $200 billion, as the market expects, and it is not increased, it will be the largest investment company in China.

Moreover, the fund is expected to grow.

Such a large scale fund will attract attention from the international market. The managers of the fund must be adept at maneuvers in the international capital market and familiar with global economic growth trends.

The managers will undoubtedly face pressure for proper management. The new company will also face pressure for earnings.

The company is expected to sell bonds in the market to buy foreign exchange funds from the central bank. It will then use the foreign exchange fund for investment. The goal obviously is to have a higher rate of return on investment through professional management.

The cost of its capital, however, could reach 10 percent if taking possible renminbi revaluation into consideration. Given the cost level, it will be a challenge for the company to hire top professionals and establish a transparent information disclosure system to raise investment returns.

International experience shows that the foreign exchange reserve should be diversified to satisfy different policy strategies.

For China, as it manages its reserve fund, it is necessary to divide it into three categories: investment with high liquidity to prevent risks, earnings-targeted long-term assets and assets aimed at long-term value.

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