China fund buys nearly 1 percent of BP: report

By Alan Wheatley and Zhou Xin

BEIJING (Reuters) - China has accumulated a stake of just under 1 percent in British oil major BP Plc (BP.L: Quote, Profile, Research), the Daily Telegraph reported, raising fresh questions about Beijing's strategy for investing its huge foreign currency reserves.

A spokesman for BP, Britain's largest company, told the newspaper that it was aware of the Chinese stake, which is worth about $2 billion, and that it welcomed all shareholders.

The Telegraph did not name the investor but said it was the same Chinese state fund that had built up a stake in French oil giant Total (TOTF.PA: Quote, Profile, Research).

That fund is the State Administration of Foreign Exchange (SAFE), an arm of the central bank that manages China's $1.68 trillion in currency reserves, the Financial Times reported last week. It said SAFE's stake of 1.6 percent was worth about $2.8 billion.

The disclosure of China's investment in BP coincides with a visit to Beijing by Chancellor of the Exchequer Alistair Darling, who has said sovereign funds are welcome in Britain as long as their investments are commercially, not politically, driven.

Darling is due to meet Premier Wen Jiabao on Tuesday as well as Lou Jiwei, head of China Investment Corp (CIC), a $200 billion sovereign wealth fund that Beijing set up last September to increase the returns on its reserves by taking greater risks.

SAFE talked about diversifying its investments long before the creation of CIC, and He Fan, a researcher with the Chinese Academy of Social Sciences, said it was a good thing for China to have two sovereign wealth funds.

But he said if SAFE continued to expand its investment portfolio, it might eventually threaten the legitimacy of CIC, especially if the latter was unable to generate juicy profits.

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