On Friday, I gave a paper entitled “The China Investment Corporation: The Rise of a Strategic Investor.” In my talk, I basically rehearsed the arguments that Gordon and I put forward in our recent paper on the CIC. In order to keep the discussion lively, I offered up what I thought to be a somewhat controversial conclusion: I argued that the historical and political architecture of the CIC implies that it cannot do anything but pursue strategic and political objectives, albeit in conjunction with (…or even under the cover of…) commercial and financial objectives.
Interestingly, my audience was more than willing to accept this conclusion; it seemed to inspire only minimal debate (perhaps I was too convincing…or boring). In fact, I was very surprised to see a smart, young PhD candidate from Clark University also come to the exact same conclusion about the CIC in a presentation right after mine (through a different set of observations and methods).
I guess I hadn’t realized that people already view the CIC as being politicized (at least in the US), since the Chinese fund has gone to lengths to reject anything but commercial motivations in their investment strategy. As Lou Jiwei has said (and repeated many times):
“What national strategy? Our strategy is long-term risk-adjusted returns.”
I just came across a Federal Reserve Bank of San Francisco paper by Titan Alon, Galina Hale, and Joao Santos entitled “What Is China’s Capital Seeking in a Global Environment?” It suggests that strategic investing is indeed part of a broader Chinese national strategy.
“While China heavily regulates many cross-border transactions and portfolio capital outflows are still very limited, direct investment overseas by Chinese companies has mushroomed in recent years. China’s total foreign holdings acquired through mergers and acquisitions (M&A), basically nonexistent 20 years ago, reached over $87 billion by the end of 2008.”
The report indicates that the full range of Chinese investors are looking to advance national and geopolitical interests, targeting, in particular, resource industries. This includes the country’s SWFs.
Whatever your perceptions about the CIC’s activities, it is interesting to see that public opinion (and that of the FRBSF) has not accepted that the SWF is pursuing strictly commercial and financial aims, which was ostensibly why the international community came together to form the Santiago Principles. I guess the International Forum will have another agenda item for the May meeting…
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