7 Sep 2010

Demystifying Chinese Sovereign Wealth Fund

Some time back on this blog we had featured a post on Sovereign Wealth Funds which had come under the scanner of most developed countries for being opaque-structured and the might which they carried to influence the financial structure of the banks in which these SWFs went on to acquire huge stakes. Now we have this paper from a scholar at the Peking University who has undertaken the exercise of Demystifying the Chinese Sovereign Wealth Fund. We rate the paper as one of a vital insight into the working of the Chinese SWF, which incidentally is one of the most acclaimed SWF given its size, structure and the role it plays in the geo-economic outlook of the present era.

The abstract of the paper reads as under;
The United States (“U.S.”) Federal Reserve (“Fed”) categorized the China Investment Corporation (“CIC”) and Central Huijin Investment Limited (“Huijin”) as Bank Holding Companies under U.S. financial law, and granted CIC and Huijin some important conditional exemptions. Exemptions, such as non-banking restrictions, are key for the CIC and the Huijin to perform their functions and are consistent with the prior practice of the U.S. Fed. Legal and factual analyses show that currently the CIC does not have an intention to apply for Financial Holding Company status. Nevertheless, the CIC should pay close attention to regulatory principles such as the system-wide supervisory approach and the source of strength doctrine. In order to ease the widespread misgivings the international community harbors against the CIC, China should enhance transparency, and join the global effort to govern and streamline the Sovereign Wealth Fund (“SWF”) in seeking mutual trust and cooperation. 

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