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CRS: China’s Sovereign Wealth Fund: Developments and Policy Implications

China’s Sovereign Wealth Fund: Developments and Policy Implications, Michael F. Martin, Specialist in Asian Affairs, September 23, 2010

  • “China’s ruling executive body, the State Council, established the China Investment Corporation (CIC), a sovereign wealth fund, in September 2007 to invest $200 billion of China’s then $1.4 trillion in foreign exchange reserves. As with other sovereign wealth funds worldwide, the CIC’s existence allows China to invest its reserves in a wide range of assets, including stocks, bonds, and hedge funds. After a rocky start in which it incurred losses of 2.1% on its global investments in 2008 – caused in part by aftereffects of the global financial crisis of 2007 – the CIC’s rate of return in 2009 rose to 11.7%. The State Council is reportedly considering a CIC request for an additional $200 billion out of China’s $2.5 trillion in foreign exchange reserves. Congress and financial analysts raised concerns about the CIC after its creation, partly because it was a comparatively large sovereign wealth fund, partly because it was government-owned, and partly because it reported directly to the State Council. Some observers were apprehensive that the Chinese government would use the CIC to acquire control over strategically important natural resources, obtain access to sensitive technology, and/or disrupt international financial markets. The CIC attempted to counter these concerns by announcing that its investment strategy would conform to international standards, and sought only to maximize its “risk adjusted financial return.” The CIC also promised to avoid politically and strategically sensitive investments.”
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