SWF Radar USA

The Economic Observer reports that, “Obstacles have been cleared for two Chinese state-owned banks – the Industry and Commerce Bank of China [ICBC - also known as the Industrial and Commercial Bank of China] and the China Construction Bank [CCB] – to set up branches in the United States, according to industry sources. The US Federal Reserve was initially skeptical of the two banks, which are backed mainly by China’s sovereign wealth fund, the China Investment Corporation (CIC). But China had made assurances [during the fourth Sino-US strategic dialogue concluded last week] that the CIC would not interfere in the operation and administration of the two banks, and would strictly play by market rules.”

ChinaStakes.com has more on the subject, providing more detail on the talks between Liu Mingkang, chairman of China Banking Regulatory Commission (CBRC), and Ben Bernanke, chairman of the US Federal Reserve Board, during the fourth Sino-US Strategic Economic Dialogue (SED).

The National Journal quotes Todd Malan, executive director of the Organization for International Investment (OFII), as saying that “The policy rationale for why we [the United States] don’t tax SWFs like private companies is because they are similar to our own tax-advantaged state pension funds.”

ArabianBusiness.com writes that, “Dubai International Capital (DIC), a UAE based private equity house that manages $12 billion, has avoided two transactions in June that ran the risk of political opposition in the US, newswire Bloomberg reported on Wednesday.”

Rachel Ziemba of RGE Monitor has written a short piece on the Joint Congressional Committee on Taxation’s report (PDF) on the “Economic and U.S. Income Tax Issues Raised by Sovereign Wealth Fund Investment in the United States,” which was released yesterday.

Thomson Financial reports that, “Chinese Finance Minister Xie Xuren said today that China’s overseas investments directed through its government-owned fund, or sovereign wealth fund (SWF), do not pose a threat to financial markets, despite continuing arguments from many in the US Congress to the contrary.”

The Financial Times reports that, “The US [Federal Reserve] has held back approval of banking licences for China's two biggest banks because of concerns over the role of China's sovereign wealth fund [the China Investment Corporation] as their largest shareholder, US and Chinese officials say. Industrial and Commercial Bank of China, China's largest bank by assets, has been lobbying for over a year to set up branch operations in the US. China Construction Bank, the country's second-largest by assets, put in its application in February.”

Thomson Reuters reports that, “An influential politician expressed regret on Friday that China has more than a quarter of its huge stockpile of foreign exchange reserves invested in U.S. government bonds. China held $492 billion worth of U.S. government bonds at the end of March, when its reserves totalled $1.68 trillion, according to Cheng Siwei, a former vice-chairman of the National People’s Congress, the largely ceremonial parliament.”

The article adds that, “[Cheng] said China would be better off if it knew how to manage its foreign exchange reserves more smartly, for instance by investing more in corporate M&A.”

Considering also this post from yesterday on SAFE’s M&A plans, it sounds like China may be gearing up to put more emphasis on the SOE-route and/or controlling-stake route in its foreign-exchange-reserve investments.

Thomson Reuters reports that, “The dollar will stage a gradual recovery in the second half of the year and into 2009, but the growing influence and economic clout of the developing world mean it will probably never regain its past dominance.”

The International Financial Law Review reports that, “In a letter to the US treasury, the Chinese Securities Regulatory Commission has criticised proposals affecting the Committee on Foreign Investment in the US. The US reaction could lead to protectionist stalemate.”

Bloomberg reports that, “Asian central banks may fail to halt a rally in the dollar by selling the U.S. currency, as Treasury Secretary Henry Paulson raises the prospect he will order intervention, Morgan Stanley said.”