Wednesday, January 30, 2008
[IWS] CRS: CHINA'S SOVEREIGN WEALTH FUND [22 January 2008]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL34337
China's Sovereign Wealth Fund
January 22, 2008
Michael F. Martin, Analyst in Asian Trade and Finance, Foreign Affairs, Defense, and Trade Department
http://assets.opencrs.com/rpts/RL34337_20080122.pdf
[full-text, 22 pages]
Summary
China established its major sovereign wealth fund, the China Investment
Corporation (CIC) on September 29, 2007 six months after it first announced its
intention to create such a fund. Financed with $200 billion in initial capital, the CIC
is one of the largest sovereign wealth funds (SWFs) in the world.
Although many of the CIC's initial investments were apparently political in
nature, the CIC's top management have repeatedly asserted that future investments
will be commercially-based, seeking to maximize the return on investment. Since
its creation, the CIC and its subsidiaries have already made several investments,
including the purchase of 9.9% of the U.S. financial firm, Morgan Stanley, on
December 19, 2007.
According to top Chinese officials, the CIC was created to improve the rate of
return on China's $1.5 trillion in foreign exchange reserves and to soak up some of
the nation's excess financial liquidity. Depending on its performance with the initial
allotment of $200 billion, the CIC may be allocated more of China's growing stock
of foreign exchange reserves.
A number of experts in international finance have expressed some concern
about the recent growth in SWFs and China's creation of the CIC. Analysts have
cautioned that major shifts in SWF investments potentially could disrupt global
financial markets and harm the U.S. economy. Other experts are less concerned
about SWFs and the CIC, and welcome their participation in international investment
markets.
China has responded by maintaining that the CIC will prove to be a source of
market stability. China has also stated that it has no intention of using its SWF to
cause harm to the U.S. economy or global financial markets.
Despite China's reassurances, there have been calls for greater oversight and
regulation of the activities of SWFs. A senior official in the Bush administration has
called on the International Monetary Fund and the World Bank to develop guidelines
for SWFs. Some international financial experts have suggested elements to be
included in such guidelines, including standards for transparency, governance, and
reciprocity. Other experts have suggested that the United States should review its
current laws and regulations governing foreign investments in the United States, and
possibly implement special procedures or restrictions on proposed investments by
SWFs. These include financial reporting requirement, limits on SWF ownership of
U.S. companies, and restrictions on the types of equity investments SWFs can make
in U.S. companies.
This report will be updated as circumstances warrant.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Policy Responses to SWFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Administrative Details of the China Investment Corporation . . . . . . . . . . . . . . . . 5
CIC's Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CIC's Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Activities of China's Sovereign Wealth Fund . . . . . . . . . . . . . . . . . . . 7
CIC's Existing Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CIC's Future Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reciprocity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Market Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Implications for China's Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Implications for Global Financial Markets and the U.S. Economy . . . . . . . . . . . 16
Congressional Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
List of Figures
Figure 1. CIC's Major Investments (as of 12/07) . . . . . . . . . . . . . . . . . . . . . . . . . 8
List of Tables
Table 1. Leading Sovereign Wealth Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL34337
China's Sovereign Wealth Fund
January 22, 2008
Michael F. Martin, Analyst in Asian Trade and Finance, Foreign Affairs, Defense, and Trade Department
http://assets.opencrs.com/rpts/RL34337_20080122.pdf
[full-text, 22 pages]
Summary
China established its major sovereign wealth fund, the China Investment
Corporation (CIC) on September 29, 2007 six months after it first announced its
intention to create such a fund. Financed with $200 billion in initial capital, the CIC
is one of the largest sovereign wealth funds (SWFs) in the world.
Although many of the CIC's initial investments were apparently political in
nature, the CIC's top management have repeatedly asserted that future investments
will be commercially-based, seeking to maximize the return on investment. Since
its creation, the CIC and its subsidiaries have already made several investments,
including the purchase of 9.9% of the U.S. financial firm, Morgan Stanley, on
December 19, 2007.
According to top Chinese officials, the CIC was created to improve the rate of
return on China's $1.5 trillion in foreign exchange reserves and to soak up some of
the nation's excess financial liquidity. Depending on its performance with the initial
allotment of $200 billion, the CIC may be allocated more of China's growing stock
of foreign exchange reserves.
A number of experts in international finance have expressed some concern
about the recent growth in SWFs and China's creation of the CIC. Analysts have
cautioned that major shifts in SWF investments potentially could disrupt global
financial markets and harm the U.S. economy. Other experts are less concerned
about SWFs and the CIC, and welcome their participation in international investment
markets.
China has responded by maintaining that the CIC will prove to be a source of
market stability. China has also stated that it has no intention of using its SWF to
cause harm to the U.S. economy or global financial markets.
Despite China's reassurances, there have been calls for greater oversight and
regulation of the activities of SWFs. A senior official in the Bush administration has
called on the International Monetary Fund and the World Bank to develop guidelines
for SWFs. Some international financial experts have suggested elements to be
included in such guidelines, including standards for transparency, governance, and
reciprocity. Other experts have suggested that the United States should review its
current laws and regulations governing foreign investments in the United States, and
possibly implement special procedures or restrictions on proposed investments by
SWFs. These include financial reporting requirement, limits on SWF ownership of
U.S. companies, and restrictions on the types of equity investments SWFs can make
in U.S. companies.
This report will be updated as circumstances warrant.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Policy Responses to SWFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Administrative Details of the China Investment Corporation . . . . . . . . . . . . . . . . 5
CIC's Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CIC's Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Activities of China's Sovereign Wealth Fund . . . . . . . . . . . . . . . . . . . 7
CIC's Existing Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CIC's Future Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reciprocity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Market Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Implications for China's Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Implications for Global Financial Markets and the U.S. Economy . . . . . . . . . . . 16
Congressional Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
List of Figures
Figure 1. CIC's Major Investments (as of 12/07) . . . . . . . . . . . . . . . . . . . . . . . . . 8
List of Tables
Table 1. Leading Sovereign Wealth Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 7:36 AM
