Why China’s Wealth Fund is Right to Invest Domestically

Keith Bradsher reports that China’s

$200 billion sovereign wealth fund will be investing mainly in China, its

much-ballyhooed stake in Blackstone notwithstanding. This is a smart and sensible

decision. As Sudip Roy says

in this month’s Euromoney, it can often make sense for emerging-market funds

to be more domestically focused:

Unlike Norway, for example, whose economy has matured to the point where

recycling the government fund’s wealth back into the country would probably

do more harm than good, Brazil’s emerging economy would be arguably

better served if its sovereign fund had a bias towards local investments.

That type of policy would provide a boost to economic development, growth

and diversification.

Bradsher concentrates in his article mainly on the political downsides of investing

abroad, rather than the economic upside of investing domestically. Now it’s

true that China, with its enormous domestic savings rate, needs less domestic

investment than does Brazil, whose domestic savings rate is minuscule. But if

the fund can help keep the Chinese banking system solvent, that’s a pretty good

outcome right there.

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