China Investment Corp (CIC) may be the poster-child for China’s sovereign wealth but it isn’t the only government-controlled entity looking at outbound investments. Neither is it the biggest.
Before June, the State Administration of Foreign Exchange (SAFE) had made several forays into overseas markets – not including standard purchases of foreign Treasury bonds. SAFE tried to minimize both the size of its investments and the publicity they attracted. With its reported US$2.5 billion investment in a private equity fund run by TPG, though, SAFE is now firmly on the sovereign wealth fund radar.
As master of China’s foreign exchange reserves, SAFE controls a pool of money that grows by US$75-80 billion a month. CIC by contrast, has US$200 billion under management, of which only about a third has been marked for overseas investments. There has already been talk of tensions between SAFE and CIC; both are supplied by China’s foreign exchange reserves, which means they could potentially be competing for funding.
The third and final of China’s sovereign wealth funds (although some people also like to add policy banks, such as China Development Bank, to this total) is the National Social Security Fund. This fund has yet to make any major overseas investments as far as we know, but it has lobbied for the right to place more money in foreign assets.
As the most visible of the funds, CIC is routinely taken to task over its lack of transparency. According to Brad Setser, a fellow at the Council on Foreign Relations who has been watching sovereign wealth funds and China, such criticism is justified given SAFE’s efforts to be transparent. For example, he says, SAFE publishes a quarterly report of its foreign holdings. Also, because SAFE is so big, we can also make relatively informed guesses about its foreign activities by looking at data from countries it’s investing in.
With three sovereign wealth funds chasing returns in global markets, it’s easy to imagine a scenario where these agencies go after the same target – say a big-name bank, oil company or mining concern. State-owned entities from those industries might also be tempted to join the fray.
It’s also easy to say that Beijing could step in and resolve the issue before it emerges. But the lines of power in the Chinese state are blurred. Such a hypothetical deal would tell us much about how this commodity is distributed among China’s political and business elite.
For example: How much sway does the central bank, represented by SAFE, have over a national champion like Baosteel? Are the pension fund’s interests sufficient to trump the high-profile CIC? We may not have to wait long to find out.