Singapore's state investor Temasek TEM.UL is in talks with a unit of Bank of China to launch a $1 billion to $2 billion investment fund to focus on fast-growing infrastructure projects across China, sources said on Thursday.

Talks between Singapore's sovereign wealth fund and BOC International, the investment banking arm of Bank of China, were in the early stages but both had agreed on the general idea of the fund plan, said the sources, who had direct knowledge of the plan.

This is an initiative led by BOC International. The two sides are talking, said one of the sources.

Temasek and Bank of China aimed to set up a joint venture to manage the fund, which would seek investment opportunities emerging from China's 4 trillion yuan ($585.5 billion) economic stimulus package launched late last year, the sources said.

The two firms plan to raise between US$1 and US$2 billion in the joint venture though no deal is inked as they are still working on legal framework for the partnership, said the sources.

There are so many ongoing infrastructure projects across the big country and the demand for capital to support those projects is huge, said another of the sources.

The sources declined to be identified as negotiations between the two parties are confidential.

Temasek and BOC International both declined to comment.

INFRASTRUCTURE IN FOCUS

China revealed its economic stimulus measures late last year to fight the global financial crisis and analysts have said an investment focus for Beijing will be government-backed infrastructure projects such as bridges, airports, ports and railways in major Chinese cities.

Beijing encourages banks, insurers and private capital to participate in infrastructure investments. For example, China's No. 2 life insurer Ping An has been approved to invest in a Beijing-Shanghai railway project.

Temasek, which sold shares of Bank of America and Barclays, suffering an estimated loss of over $4 billion in the process, is trying to shift its investments to non-financial sectors with focus on Asia.

Temasek has in the past invested in infrastructure firms.

It backed an infrastructure trust, CitySpring Infrastructure Trust, which has invested in energy and water projects and has S$1.9 billion in total assets as of the end of March.

Temasek's infrastructure, industrial and engineering assets were only 6 percent of its portfolio at the end of March 2008, compared with 40 percent in financials.

One reason why Hong Kong-based BOC International chose Temasek to cooperate with was because the Chinese investment bank prefers a partner who can understand Chinese business culture and politics, one source said.

Many Western investors have complained about bureaucratic approval processes as well as opaque investment rules in the communist nation, especially when doing major deals.

($1=6.832 Yuan)

(Editing by Muralikumar Anantharaman)

Investment China