China Redux

“Far, far worse things can happen than for China to come to the west bearing the chequebook it has earned by its people’s remarkable efforts.” This observation, which concludes Martin Wolf’s recent column on sovereign wealth funds (SWFs), seems rather obvious.  The real question is whether there could be anything better for the U.S. After all, China continues to buy dollars even as the value of its greenbacks falls; now the Chinese government is planning to take its excess savings – more than $200 billion worth – and invest it back into the U.S and elsewhere!  That sounds like a heck of a deal for the west to me.

Wolf and others focus on the policy problems posed by these big investment funds, which are run by cash-rich governments as diverse as China, Norway and Russia.  SWF investments certainly may raise thorny issues around corporate governance and national security, but my view is that these things will be worked out in a (mostly) sensible way.  Some deals with go through and some will not, and for good reason.

One input which has not been duly considered is that of the Chinese public, i.e. the real owner of this sovereign wealth.  What does it think should be done with the money? Does the Chinese government, and other governments for that matter, have an obligation to secure a higher rate of return? If so, what is it, and how should they go about it?

I wonder what China’s poorer denizens think about the creation of this fund, named the CIC (China Investment Corporation).  Perhaps they think the savings would be better used to invest in domestic education, health, environmental or other needs.  After all, in a Communist-run country, it would seem hard to justify chasing after an 8 percent or 14 percent or XX return while comrades are going hungry.  Of course, they hardly have a voice in the matter.

One thing is certain: China’s citizens would not likely respond well to losses incurred by the SWF.

The social and political risk China is taking in setting up the fund could hold clues as to how its plans to manage the portfolio.  Investments in Chinese businesses would be a political plus, and indeed, it appears that the CIC has already committed some funds to domestic firms.  And I wouldn’t expect anything too risky.  But that depends on the extent to which China’s wealth funds open their books.  Early indications are that portfolio holdings will not be very transparent; in such a case portfolio managers would answer to the Party, but not the public.

That, of course, would be bad news for everybody.

Chris at Eyes East sees a nascent space race to get back on the moon emerging between the U.S. and China.  Personally, I’m not sure it really matters — that is, who gets back first.  The moon is old-hat, even though it would still be a positive symbolic achievement for China.  What’s more interesting is to see the way the moon race is being manipulated in the U.S. for political gain. 

It’s part of an annoying and, some might say, virulent trend that has turned China into the bogeyman of 21st century American life.

The hallmark of the bogeyman is that it is normally pops up when a special interest must be fed.  To return to the example of space: Read the rest of this entry »

In Sudan, the FT reports that China will provide the al-Bashir government with a new loan for $200 million, which will constitute two-thirds of a planned Sudanese compensation payment to the war-devastated region of Darfur (full text here):

If the loan from China is provided specifically for compensation, it would mark a significant departure for a country whose financial support to African countries is normally provided for trade and infrastructure projects.

Significant departure, indeed. It seems to me that characterizing Chinese aid to Africa as earmarked for “trade and infrastructure projects” is a generous description. For example, providing an interest-free loan to build a new presidential palace in Sudan would hardly seem to count as either trade or infrastructure.   No matter; China’s growth projects in Africa start to look a lot better in light of a peace-facilitating, stabilizing loans such as this one.  Kudos to China for stepping up to the plate. 

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Interesting report in the Washington Post today disclosing that China is supplying Iraqi police forces with $100 million in light military equipment (click here for full text).  It seems China has stepped in to fill a gap caused by America’s inability to produce/deliver fast enough to meet Iraqi demand for weapons and other materiel.

U.S. Defense Secretary Gates said this worries him only for the reason that the U.S. has a harder time tracking non-American weapons than it does American ones.  So, for example, when weapons are confiscated from enemy hands, it’s harder to trace their origins.

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