Who should worry about sovereign wealth funds

Financial commentary Wu Qing The rise of China's sovereign wealth funds the West is concerned about the "central Bank" journal published in 2005, "who holds the country's wealth?" "The article uses the term" sovereign wealth fund (sovereign wealth fund, SWF) "to refer to a class of state-owned investment funds that invest in global financial assets, including equities, bonds, real estate, precious metals and other financial instruments. The creation of sovereign wealth funds without the pressure of external debt has long been the case with the government's budget balance.　　The Kuwaiti Investment Authority (Kuwait Investment Authority), which now manages more than $250 billion trillion of assets, was established 1953 years before Kuwait's independence from the Daying Empire. After the 1997 Asian financial crisis, a sovereign wealth fund with foreign exchange reserves was established. Some developing-country governments have increased foreign-exchange reserves to prevent foreign exchange depletion. According to the International Monetary Fund, from the four quarter of 2003 to the three quarter of 2007, the official foreign exchange reserves of developing countries increased by 2.654 trillion U.S. dollars, an increase of 139%. China's foreign exchange reserves have grown faster, doubling in four years, from 400 billion to $1.6 trillion trillion.　　In the same period, the official reserves of developed countries increased by 350 billion U.S. dollars, an increase of 32%. Large amounts of foreign exchange reserves need to be preserved and added, thus leading to a rapid increase in the number of sovereign wealth funds after 2000. According to Tede Durumen of the Peterson Institute for International Economics in Washington (the US government's think-tank), the funds hold assets that reached $2.5 trillion trillion in 2007. China Investment Corporation (CIC) has become the 6th largest sovereign wealth fund in the world on a scale of 200 billion dollars.　　The rapid rise of these funds has drawn the attention of the West. There are four main concerns about sovereign wealth funds in the West: First, the fear that, as the size of the sovereign wealth fund pool is growing, it will have a potential impact on the asset markets, and second, that sovereign-wealth funds ' investments are likely to be more political, rather than economic, concerns.　　Thus, it is possible to control the strategic industries of other countries and threaten national security; Third, there is widespread concern among investors and regulators about the lack of transparency in sovereign wealth funds, and the fear that SWFs ' unclear targets and unpredictable behaviour could be a potential tool for Governments to achieve public policy and macroeconomic goals. The real concern is that people in the West don't worry about sovereign wealth funds as much as the Western world. Anders Aslende, another scholar at the Peterson Institute for International Economics in Washington, said in a published article, "The truth of the sovereign wealth fund," in late 2007: "In fact, such a fund is not worth the fear of Americans and Europeans." If anyone should be concerned about the funds (worry), it would be the nationals of the countries that formed the funds. "The reason he speaks, two are worth considering in China. First, managing wealth is the specialty of individuals and private companies, and governments often do poorly. On the one hand, the governance structure of state-owned companies is less suitable for managing wealth than the governance structure of private companies, on the other hand, because state-owned companies are invariably serving the government, thus deviating from the profit maximization goal. So if both state-owned and private-sector wealth management firms engage in a zero-sum game in the international financial and commodity markets, the end result must be the transfer of wealth from state-owned sovereign wealth funds to private investment institutions. So the losses of sovereign wealth funds on Wall Street over the past few years are not accidental.　　For the sake of national interest, this is no more than state-owned enterprises involved in the domestic 0 and game, at least meat rotten in the pot. Second, the income from foreign exchange reserves only partially compensates for the loss of reserves. The opportunity cost of holding large foreign exchange reserves is very high, and the risk of depreciation of dollar and dollar assets.　　As countries ' foreign exchange reserves invest heavily in dollar assets, the price of dollar assets is rising and yields are falling very low. China's excess foreign exchange reserves face huge value-added problems. The formation of China Investment Limited liability company is one of the last resort. But this approach can only be Yantang, the real solution can only be the exchange rate regime reform. It has been 18 years since 1985, when it was forced to accept the Plaza Accord and voluntarily stop intervening in 2003.　　Based on Japan's lesson, China may be able to shorten the process. (Author Unit: Finance Institute of Development Research Center of the State Council)