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Sovereign Wealth Funds; How Will the US React?

Published on: October 13th 2007 16:45:39
On October 1st China Investment Corporation (CIC), the investment arm of the Chinese Government, opened for business. CIC adds to the number of so-called sovereign wealth funds” (SWF). These are state-owned entities set up to invest the funds of countries with large financial surpluses. Counties such as Norway, the Gulf oil producers and Singapore have operated SWFs for many years. SWFs are now estimated to control assets of approximately $2.5 trillion . Over the next 10 years, their holdings will increase to close to $20 trillion, giving them a much weightier role in international investment. Traditionally, the US has welcomed foreign investment. CIC has already made a $3 billion investment in the Blackstone Group and a current investment by Borse Dubai in the NASDAQ stock exchange is likely to be approved. Congressional contacts tell us that the political climate is now better informed about SWFs and that fewer negative reactions are to be expected. Nonetheless, concerns regarding national security and the competitiveness of US financial markets mean that SWFs need to act carefully. This applies especially to Chinese state-run investors like CIC. As a Treasury official put it to us: “China’s investment objectives are never purely financial. They are looking to acquire advanced dual-use technologies. Chinese investments will receive extra scrutiny.”

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