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China's Sovereign Wealth Fund: Weakness and Challenges
Author(s) -
Zhang Ming,
He Fan
Publication year - 2009
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2009.01133.x
Subject(s) - sovereign wealth fund , china , business , umbrella fund , foreign direct investment , corporation , foreign exchange reserves , renminbi , investment (military) , financial system , government (linguistics) , economics , bureaucracy , finance , international economics , market economy , open ended investment company , return on investment , exchange rate , macroeconomics , political science , linguistics , philosophy , production (economics) , politics , law
The establishment of sovereign wealth funds in large developing countries has generated hot debate among participants in the international financial market. When accumulated foreign exchange reserves surpass a sufficient and an appropriate level, the costs, risks and impacts of holding reserves on the macroeconomy of a country need to be considered. The Chinese Government established China Investment Corporation (CIC) in 2007 to diversify its investment of foreign reserves and to raise investment income. However, because of certain conflicts of interest and institution‐design caveats, CIC possesses some internal weakness, including a vague orientation, mixed investment strategies and an inefficient bureaucratic style. Although the subprime crisis has softened certain regulations and lessened rejection by the USA of CIC potential investments, the increased volatility and uncertainty of the market means that CIC is facing some new challenges in terms of its investment decisions. Moreover, CIC is competing with other Chinese investment institutions for injections of funds from the Chinese Government.