There are two driving forces behind the creation of the China Investment Corporation, the country’s $200 billion sovereign wealth fund.

One is to provide an escape route for some of the money piling up with inflationary consequences in China’s banking system from its record trade surpluses. The other is to try to earn higher returns on part of its $1.53 trillion in foreign currency reserves, the world’s largest stockpile.

China has accumulated so many reserves because its central bank, in order to hold down the value of the yuan, buys most of the dollars pouring into the country from its trade surplus and hefty inflows of foreign direct investment. If it did not intervene, the yuan exchange rate would rise sharply, threatening millions of export jobs.

About two-thirds of the reserves have been invested to date in safe but relatively low-yielding US bonds. CIC’s mandate is to take higher risks in search of higher returns. That is easier said than done, especially when global markets are falling. Its first investment, a stake of just under 10 per cent in US private equity giant Blackstone, has lost about 40.7 per cent from its $31 IPO price in June. This has provoked criticism on the internet and some analysts think it might prompt CIC to proceed with greater caution.

In any case, CIC is not the giant some make it out to be. Still, Chinese officials recognise the controversy that a communist-run fund would stir if it snapped up iconic Western companies and it has promised to run CIC along purely commercial lines and to steer clear of politically motivated investments.

When Wen Jiabao promised again today that the government would not meddle in CIC’s activities it highlighted Chinese leaders’ awareness of the potential for an international furore.

Only $67 billion of its initial capital will be invested abroad and a lot of that will be managed by overseas fund managers rather than deployed for headline-grabbing stakes such as the one in Blackstone or last month’s $5 billion investment in Morgan Stanley.

Only a third of the money will be available for international investment. CIC has already spent $67 billion to buy from the central bank an investment agency that was used to recapitalise some of China’s big banks. It plans to use the remaining $67 billion or so to shore up other ailing banks. It pumped $20 billion dollars last month into China Development Bank – which bought three per cent of Barclays last year – and has earmarked 40 billion dollars to resuscitate Agricultural Bank of China.

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