China's Sovereign Wealth Fund: Weakness and Challenges

Ming Zhang () and He Fan

Development Economics Working Papers from East Asian Bureau of Economic Research

Abstract: The establishment of sovereign wealth funds in large developing countries has generated hot debate among participants in the international financial market. When accumulated foreign exchange reserves surpass a sufficient and an appropriate level, the costs, risks and impacts on the macro-economy of countries holding reserves need to be considered. The Chinese Government established China Investment Corporation (CIC) in 2007 to diversify its investment of foreign reserves and to raise investment income. However, because of certain conflicts of interest and institution-design caveats, CIC possesses some internal weakness, including a vague orientation, mixed investment strategies and inefficient bureaucratic style. Although the subprime crisis has softened certain regulations and lessened rejection by the USA of CIC potential investments, the increased volatility and uncertainty of the market means that CIC is facing some new challenges in terms of its investment decisions. Moreover, CIC is competing with other Chinese investment institutions for injections of funds from the Chinese Government.

Keywords: CIC; external challenge; internal weakness; foreign exchange reserve management (search for similar items in EconPapers)
JEL-codes: F21 F55 H11 (search for similar items in EconPapers)
Date: 2008-12
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Related works:
Journal Article: China's Sovereign Wealth Fund: Weakness and Challenges (2009)
Working Paper: China's Sovereign Wealth Fund: Weakness and Challenges (2008)
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