SWF Radar SAFE

The China Economic Quarterly, in an article in the Financial Times, discusses research by Brad Setser on China’s stockpile of foreign assets, writing that, “[It] is actually much larger and growing far faster than official foreign exchange reserve figures would suggest - a situation that demands a decisive shift in policy both to keep the country’s finances on track and to dampen international criticism of Beijing’s growing financial muscle.”

The Beijing Review writes that, “[S]ome analysts said China has no better choice than to keep investing its swelling dollar reserves in U.S. Treasuries. While the American economy has been undermined by the property bubble, EU nations have received a heavier blow from the U.S. financial market debacle, making euro assets bad investments for China, said a person close to the State Administration of Foreign Exchange who preferred to be anonymous.”

ChinaStakes.com writes that, “The State Administration of Foreign Exchange (SAFE) will replace the current reserve management department with an international reserves department with more detailed responsibilities, among which will be undertaking more macroeconomic research.”

RIA Novosti writes that, “China is a true ‘island of stability’ amid the raging financial crisis. Given its huge international reserves, assessed at $1.9 trillion, it can maintain its own stability, but it can also help developed countries overcome the crisis.”

Daniel Drezner writes in the National Interest that, “Lost amid the financial chaos of the past six weeks was the revelation that China's State Administration of Foreign Exchange used a $300 million purchase of government bonds and a $150 million grant to Costa Rica in return for that country's decision to sever diplomatic ties with Taiwan after sixty-three years and recognize the People's Republic of China. Being able to offer big carrots to small countries is a very handy tool in great-power foreign policy. And the current crisis suggests that the United States is not the only country that can proffer such carrots.”

The Oxford International Review’s SWF blog has published an interview with Yu-Wei Hu, consultant on Chinese pensions at the OECD.

Among other things, he says that, “[The m]ain topics in which the OECD is interested and has worked on include a) SWFs and recipient country investment policy; b) SWFs and public pension reserve funds; c) SWFs and state-owned enterprises.”

ChinaStakes.com writes that, “[W]ith a spreading financial crisis dragging the global economy into possible recession, those countries with ample foreign exchange reserves, particularly China, must take action, but the question of exactly what to do is a dilemma. Should it lend even more money to the US government? Or should it put its money into buying stakes in Wall Street financial institutions? In a larger sense, should China become a stakeholder in the United States, or should it just remain a creditor?”

Research Recap writes that, “Efforts to get a better handle on the activities of sovereign wealth funds face a number of challenges, notably from China, according to Oxford Analytica.”

It adds that, “[S]tructurally SAFE is not a SWF, so there is a risk that the forthcoming IMF principles may not be easily applicable to it, OxAn says”

Derek Scissors of the Heritage Foundation writes that, “What must be quickly achieved is greater transparency from SAFE as well as state firms. SAFE declines to discuss even the existence of offshore arms through which purchases are made. Just a quarterly report of SAFE’s holdings would go far.”

The Oxford International Review’s SWF blog has published an interview with the executive director of Shanghai-based Z-Ben Advisors’ Michael McCormack.

Among other things, he says that, “I think the initial response – the one that preceded study, dialogue or serious appraisal – was predictable: certain sections of the US legislative branch (and their think-tank armourers) sounding alarms, a consensus for caution expressed in the EU, Britain rolling out the welcome mat… Since early summer 2008, I’m pleased to see (as I’m sure CIC is) a more reasoned set of responses emerging.”