Unlike much of the rest of the world, China’s economy is
suffering from excess liquidity with no outlet. Household savings total about
$2.2 trillion, partly because savings are the only option ordinary people have
aside from the domestic stock markets. "The correct solution is to permit
individuals to export capital," Charles Dumas, a director at Lombard Street
Research in London, told The
Banker magazine in September. Calling SWFs in
general "deeply suboptimal," he went on to say that for the Chinese, "channeling
their savings through state-owned banks, via the People’s Bank of China, into a
sovereign wealth fund will create understandable suspicions abroad, and lesser
welfare for China." Outflow from millions of Chinese investors, on the other
hand, could pump life into markets in other parts of the world.
Charles W. Thurston writes about emerging markets finance and
serves as a project consultant to multilateral banks and nongovernmental
agencies.
Some countries are wary of sovereign fund investment in
strategic assets.
Much of the world fears
sovereign funds because of their ability to acquire certain strategic foreign
assets. Though the International Monetary Fund (IMF) calls the funds "black
boxes," a reference to their secretive nature, it is believed that Russia has
considered investing its $100 million stabilization fund into civil aviation and
high-precision machine toolmakers. There is also global concern that China,
certain Middle Eastern countries and others with dubious motivations will invest
in strategic technologies. Even Iran has an $8 billion sovereign wealth
fund.
Consequently, nations are greeting foreign suitors with a mood
of suspicion. The United Kingdom has been an exception, selling shares in its
ports, utilities and even the London Stock Exchange to foreign investors. Yet
nearly every other country that expects to be a recipient of SWF capital is
considering regulations about disclosure and foreign ownership in strategic
industries, hoping to prevent cross-border intrigue and accusations.
France, Spain and now Germany are among the EU nations
considering outlawing ownership of certain national industries by foreign
investors. U.S. authorities are pressuring the IMF to require transparency of
investments by members’ funds. Perhaps in reaction, China unveiled in August a
new plan to screen foreign investment for national-security concerns. And China
is expected to restrict Singapore’s ability to invest in its third-largest
airline, the debt-plagued China Eastern Airlines. Singapore Airlines and
Singapore’s SWF Temasek announced recently that they intend to buy a 24 percent
stake; China has strict rules preventing foreign investors from owning more than
50 percent of any airline.
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