China’s SimEconomy: a USD200bn foray into Sovereign Wealth Funds

This is not the first time. According to Wikipedia’s quite capable explanation of the phenomenon, China has about USD300bn of the estimated USD2.5tr total wealth belonging to Sovereign Wealth Funds, sloshing around the world. A USD200bn is nothing at which to sneeze, though.

The Chinese government launched a company Saturday to invest $200 billion from its vast foreign reserves, creating one of the world’s richest investment funds at a time of rising scrutiny of such state-run entities.

Financial analysts are watching to see where the new company invests and the impact on financial markets, especially demand for U.S. Treasury securities, in which Beijing holds a big share of its reserves.

Beijing announced plans for the fund in March in hopes of earning higher returns on its $1.3 trillion in foreign reserves, which are the world’s largest.

The announcement also mentioned the fund “starting out” with USD200bn – suggesting that, should said fund make money (or otherwise assist the economy of China), it could easily see it capitalisation expand in big increments. The world is already reacting quite predictably:

An official involved in creating the fund told The Associated Press in May it was likely to try to avoid causing political strains by buying minority stakes in companies abroad rather than pursuing outright takeovers.

Chinese companies have been uneasy about foreign acquisitions since an uproar in 2005 over state-owned oil company CNOOC Ltd.’s attempt to acquire U.S. oil and gas producer Unocal Corp. CNOOC dropped its bid after American critics said it might endanger energy security.

Some officials and economists want the new fund to finance foreign expansion by Chinese companies or buy oil and other resources needed by the country’s booming economy.

The rapid growth of such sovereign wealth funds run by Asian and Middle Eastern governments has raised questions about their intentions and impact on financial markets.

The European Union might restrict investments by government funds unless they disclose more about what they invest in and why, the top EU economic official said this week.

“If they don’t agree to these criteria, we can find good reasons to react in some cases,” EU Economy Commissioner Joaquin Almunia told London’s Financial Times in an interview.

China’s investments have drawn special attention because of the country’s large and growing economic and military might.

Again, and I’m pretty sure I’ve mentioned this previously: I don’t much agree or disagree with economies that benefited from gunboat diplomacy or their various East India Trading Companies turning about and lowering booms on anyone else trying to join their club – same goes for nuclear power – but it is hypocritical. Very, very hypocritical. Particularly when said countries (and this goes, also, for the nuclear question. Particularly given who has actually dropped Atomic bombs on whom) blithely overlook their own histories and the sources of their wealth.

But, then, why not? Who among the Bush supporters can even identify, still less justify, just where his family’s money and passport to aristocracy came from? Hint: grandfather made money with Hitler, great-grandfather (yes, America, there is an aristocracy – and you aren’t invited) profited as an industrialist and chief of the Ordnance, Small Arms, and Ammunition Section of the War Industries Board in World War I. The one before that was a Reverend. They didn’t so much enter US 20th Century aristocracy as help found it.

The trouble with globalisation is not, necessarily, things like Sovereign Wealth Funds, which we attack as destabilising while agreeing, in principle, to idiot notions like merging the New York and London Stock Exchanges. The principle problem with globalisation is that we’re all trying to participate in it while some people/countries believe they ought to own it. Or, like the US, are terrified of a financial world in which they cannot hope to participate, owing around thrice, in debt, that which China alone has in ready cash.

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