China’s Sovereign Wealth Funds Gaining Credibility and Traction

China’s Sovereign Wealth Funds Gaining Credibility and Traction

BEIJING -- China is seeking more-productive ways to deploy the $3.2 trillion it holds in foreign exchange reserves and other national wealth, including rapid expansion of its sovereign wealth management vehicles. With Western investors on the back foot in the past year, Chinese funds have notably expanded their ownership of high-profile strategic overseas assets. While large-scale Chinese foreign investment is seen by many as a cause for geopolitical concern, these entities are becoming increasingly sophisticated and credible, representing one of the most viable mechanisms for restoring balance to global trade and investment flows.

Asian sovereign wealth funds (SWFs) have accrued an impressive range of strategic assets, increasingly diverse by location and type, and are steadily establishing a solid track record and enhancing their credibility as international investors. With developed markets still mired in a debt crisis, cash-rich Asian SWFs find themselves presented with an unprecedented window of access to high-quality developed market assets. Led by the Chinese, they strongly intend to take advantage of the opportunity.

China now has five SWFs and is reportedly considering establishing a sixth. In terms of overseas investment, the key player is China Investment Corp. (CIC), established in 2007 to manage a portion of China’s forex reserves under the supervision of the Ministry of Finance. With assets of $410 billion and a global portfolio acquired in double-quick time, CIC has been a primary actor in China's global economic re-emergence. But its growth has been accompanied by persistent doubts over the management and purpose of the fund. National security concerns in target countries have repeatedly prevented CIC from acquiring its first-choice investment objectives and forced it to pursue an opportunistic strategy that complicates long-term planning.

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