Weekend Reading

Ashby Monk

This weekend’s paper comes to us from Li Hong of Shanghai University and is entitled “Depoliticization and Regulation of Sovereign Wealth Funds: A Chinese Perspective.” Here’s a blurb:

“This article explores the justification and method for depoliticizing sovereign wealth funds (SWFs) from a Chinese perspective and is based on the experiences of the China Investment Corporation (CIC) during the two years after its establishment in 2007.”

And here’s one of my favorite excerpts:

“…it could well be that CIC will play a key role in the move towards greater liberalization. Given the size of China’s foreign reserves, it appears that policy-makers have reason to feel more comfortable about embracing the next face of financial globalization. Clearly, this role is apparent in CIC’s domestic investment and control over financial institutions, but it also pertains to its external investments, where, if successful, CIC can assist in the establishment of professional investment expertise more broadly. It is therefore in the interest of Western countries to see CIC flourish as a professional investment company that serves as a catalyst for the latest efforts at building a market-oriented economy in China, with a less politicized financial services sector. Indeed, it appears likely that the more success CIC enjoys, the less it will be subjected to political pressure and employed to further political aims.”

In other words, Western countries should be working to facilitate CIC investments within their borders, since a successful CIC will provide comfort and legitimacy to those Chinese policymakers pushing for greater liberalization of domestic financial markets. It’s an interesting argument. For more insights on this paper, check out Larry Catá Backer’s blog. (And here’s a neat chart I “grabbed” from Li’s paper on the CIC’s  funding arrangement.)

2 Responses to “Weekend Reading”

  1. 1 Rien Huizer January 25, 2011 at 12:44 am

    Both Hu’s and Cata Backer’s articles are interesting and give food for thought. I find Hu’s article puzzling, although it is not surprising that he appears to characterize CIC primarily as a state holding a la Temasek. That the West should treat entities like CIC (with an internal PRC ranking on par with a ministry) with kid’s gloves because that would show the sceptics at home that good governance and other neoliberal things are worthwile, even rewarded abroad and , more importantly, lead to success. Or did I miss something here? It sounds pretty political to me..

    • 2 Ashby Monk January 25, 2011 at 8:03 am

      No. I don’t think you missed anything. It sort of reverses the political stream, doesn’t it. Rather than China using the CIC for political purposes…the article seems to suggest that the West should use the CIC to achieve political purposes in China. Thoughts provoked!

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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