SWF Radar SAFE

Reuters reports that, “Congress should…require [the China Investment Corporation] to disclose investments it is making in the United States, [the US-China Economic and Security Review Commission] said Thursday in its annual report…Larry Wortzel, chairman of [USCC said that] ‘…China has been using the funds to seek political and economic influence over other nations’…The clearest case of this was in January 2008, ‘when [China’s SAFE Investment] promised to purchase Costa Rican government bonds in return for Costa Rica’s severing of diplomatic ties with Taiwan,’ the report said.”

The US-China Economic and Security Review Commission report is available here.

Reuters reports that, “[General Electric] said on Thursday it has no intention of raising additional capital from sovereign-wealth funds. The company is in talks with Asian investment vehicles about possible joint ventures similar to a deal reached earlier this year with Abu Dhabi investment agency Mubadala Development Co, said GE spokesman Russell Wilkerson.”

Trading Markets reports that, “Sources said that the capital China SAFE Investment Ltd., the biggest financial investment institution in China, used to buy shares of three listed state-owned commercial lenders was approaching CNY 10 billion [$1.46 billion]. The three listed state-owned banks are Industrial and Commercial Bank of China, China Construction Bank and Bank of China.”

Bloomberg reports that, “General Electric Co., down 61 percent this year in New York, is seeking funds from China Investment [Corporation (CIC)], Government of Singapore Investment [Corporation (GIC)] and at least two other sovereign-wealth funds. Talks are also being held with Temasek Holdings Pte of Singapore and [China’s SAFE Investment Company].”

Brad Setser writes that, “Sovereigns may have long time horizons, but they also have historically been very loss-adverse. China’s current flows suggest that it was reaching for yield in a host of markets back when the RMB was appreciating, and after getting burned it retreated from any kind of risk.”

The Standard reports that, “[Bank of America] said it will exercise its call option to purchase 19.58 billion more H shares [worth US $7.08 billion] of China Construction Bank from state-owned China SAFE [Investment], formerly known as Central Huijin Investment.”

Ashby Monk of OIR has published an interview with Zhang Ming of the Institute of World Economics and Politics, part of the Chinese Academy of Social Sciences. An excerpt:

“OIR: Jamil Anderlini of the FT reported in September the State Administration of Foreign Exchange used its assets to extract political concessions from Costa Rica. What’s your reaction?
“Zhang Ming: Frankly speaking, every country has been using its domestic resources, including foreign exchange reserve, to maximize its national interest. I don’t know why foreign media have paid so much attention to this issue.”

The Wall Street Journal has published a profile of Hu Xiaolian, administrator of China’s State Administration of Foreign Exchange (SAFE) and deputy governor of the People’s Bank of China.

It says that, “In particular, Ms. Hu’s role as manager of China’s massive foreign-exchange reserves – the world’s largest, on track to surpass $2 trillion soon – is especially pivotal now as the global financial crisis unfolds. China is believed to be the largest holder of U.S. Treasury debt, and its continued purchases of new Treasury bonds will be crucial to helping the U.S. finance the rescue of the financial system. While there has been some grumbling within China about the low returns on the investment, many observers don’t expect the reserves to be pulled out of the U.S. on a large scale.”

Trading Markets reports that, “The commercialization of China Development Bank (CDB), a policy-oriented bank in China, is going to be completed soon. The bank expects to be formally established on November 10, however, it has to gain approval from the State Council, the Chinese cabinet, first. After commercialization, it will be a 50-50 joint venture between the Ministry of Finance and China SAFE Investment Ltd., the biggest financial investment institution in China. Like other commercial lenders in the country, it will introduce strategic investors.”

Ashby Monk of Oxford International Review has published a Q&A with Kathryn Gordon, Senior Economist at the OECD and the OECD observer to the International Working Group on SWFs.

Among other things, she says that, “I have no specific knowledge concerning the truth of these allegations [that China’s SAFE used its assets to extract political concessions from Costa Rica], but, in general, it is true that mixing geo-political objectives with financial objectives creates a bad name for government-controlled investments…Political objectives lie in a continuum between acceptable and unacceptable goals….OECD countries would welcome an opportunity to explore with SWFs and others the question of the ‘grey zone’ between acceptable and unacceptable political objectives.”