China’s sovereign wealth fund: official announcement coming?

According to the Wall Street Journal, China is expected to formally establish its sovereign wealth fund (SWF) on Saturday. The size of the fund is expected to reach US$200 billion, about 1/7th of China’s total foreign reserve assets of US$1.4 trillion. According to the Wall Street Journal, US$93 billion has already been prepared for the SWF, likely to be named the China Investment Corp.

The Wall Street Journal article spends a couple paragraphs outlining the potential for sinister uses of the fund by highlighting the fact that planners “have stressed…that their plans are financially driven and shouldn’t be seen as threatening.” Then, in another part of the article: “The fund’s preliminary investment in Blackstone…fueled concerns among some foreign politicians about its intentions.”

These quotes sum up some of the viewpoints which circulate in the mainstream media. Indirectly, they are ascribing potential sinister motives to the setting up of this fund. One could even say this shows a bias on the part of mainstream media against the “Communist” government, which, of course, must have motives in setting up a SWF other than the benefit to China.

How does an investment in the Blackstone group signal some kind of evil “intention”? Blackstone Group represents the pinnacle of American capitalism, a company using money for the sole purpose of making more money. To the Red Cat Journal, an investment in Blackstone Group should signal to the world that at least part of its investments are going to be made with the sole purpose of higher returns.

The mainstream media, instead of looking for evil intentions, should be focusing on two other topics: 1) “What method of managing the SWF is likely to benefit China?” and 2) “What will be the impact of the SWF on the outlook for the economy and the investment environment?” Thinking about the answer to #1 will help us figure out where the money is likely to go better than focusing on threatening intentions. The answer to #2 may help us to either properly position our investments for gains or to avoid potential losses.

For more on one potential aspect of the answer to question #2, see our previous article on the stunning rise in Hong Kong Exchange’s share price.