Given the stakes involved for the United States and China, as well as for the global economy, it is important that the policy community is as well informed as possible about sovereign wealth funds in general and the Chinese SWF in particular.

To that end, The National Bureau of Asian Research is pleased to present Michael Cognato’s research on CIC. His paper provides an analysis of the political and economic debates that led to the formation of CIC, outlines what is known about the corporation’s investment objectives and management structure, and details the domestic and foreign investments that CIC has undertaken to date. He also examines some of the specific concerns that have been raised about the potential risks posed by CIC to U.S. national interests and draws some preliminary conclusions about their validity.

The NBR Analysis (ISSNISSN 1052-164X), which is published five times annually by The National Bureau of Asian Research (NBRNBR), offers timely essays on countries, events, and issues from recognized specialists. The views expressed in these essays are those of the authors, and do not necessarily reflect the views of other NBRNBR research associates or institutions that support NBR.

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NBR ANALYSIS
Volume 19, Number 1, July 2008

Understanding China’s New Sovereign Wealth Fund
Introduction
Eric G. Altbach
China Investment Corporation: Threat or Opportunity?
Michael H. Cognato

The National Bereua of Asian Research
Informing and Strengthening Policy

Visit Understanding China's New Sovereign Wealth Fund Download Page

China Investment Corporation: Threat or Opportunity?
Michael H. Cognato

Executive Summary

This study examines the establishment, management, and investment decisions to date of China Investment Corporation (CIC), analyzes potential causes of concern, and identifies opportunities for engagement.

Main Findings:
• The need to generate higher returns was instrumental in CIC’s establishment and was built into its funding structure.
• CIC’s management consists largely of well-respected technocrats with investment experience and proven records as pro-market reformers.
• CIC’s international investments have so far been unremarkable. Its ownership of much of China’s banking sector may ultimately prove more consequential.

Policy Implications:
• There is, as yet, little evidence to support worries that CIC will pose a national security threat or will engage in investments meant to serve China’s broader strategic priorities.
• There are real causes for concern that CIC will abet financial corruption or provide unfair advantages to Chinese state companies.
• CIC’s emergence could also produce benefits for the United States and other countries. In addition to providing increased investment capital for countries in which it invests, CIC investments could accelerate China’s integration into the international financial system and drive liberal reforms in China’s domestic economy.
• Seizing the opportunities that CIC presents would require active efforts at engagement from the U.S., other countries, and international organizations. Attempts to limit CIC’s activities will limit these opportunities.

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