I came across this article (below) in China Trade Information and wanted to share here. This is a scholarly work (not light reading) and well researched. One salient takeaway is the truly massive amount of capital that China needs to invest at home and abroad. With 500 billion (US$ equivalent) per year to play with … this makes for one heck of a sovereign wealth fund. Much of this capital will be invested under the direction of State controlled banks, the China Investment Corporation (CIC) and other private “China owned” companies … NOTE: It’s virtually impossible to discern where China nation/state ends and private industry begins. It’s intentionally opaque in China.
This article was published in mid January 2008 and clearly much has changed in China and world financial markets since then. Inflation has spiked in China, the US Dollar has continued to decline relative to the RMB and China stocks have recently been sliding. And now there is unrest in Tibet as China prepares to host the 2008 Summer Olympic Games. Despite the recent financial and political tumult in China, I would imagine that US equities, with strong balance sheets, are beginning to be viewed as an attractive place to put some of that half trillion in capital. A billion or two into Apple (AAPL) would be nice 🙂 … If new AAPL investment comes courtesy of a large China telecom company (albeit this info would not be public), then we’ll know a formal “iPhone in China” deal has been done.
See related (March 2008) article here > Chinese premier deeply worried about world economy
What to do with over a half a trillion a year?
Understanding the changes in the management of China’s foreign assets
Fellow, Geoeconomics Center, Council on Foreign Relations
January 14, 2008
EXCERPT: The China Investment Corporation’s $5 billion investment in Morgan Stanley, its $3 billion investment in Blackstone and the China Development Bank’s likely $2b investment in Citigroup have attracted an enormous amount of attention. Together, though, Morgan Stanley, Blackstone and Citigroup account for about 2% of the increase in the foreign assets of China’s government in 2007. China added $427b to its reserves (after adjusting for valuation gains) and an estimated $17b to the foreign assets of the China investment corporation in 2007. The state banks are on track to receive $60b from the government in 2007 – and it isn’t clear if this total includes the potentially large sum of dollars the state banks may have been asked to hold to help limit overall reserve growth. Consequently, total foreign asset accumulation is at least $500b (Figure 1). It is likely closer to $600b. The record increase in China’s foreign assets is all the more impressive as it came in the face of a commodity price shock that increased China’s import bill.
The acceleration in the pace of Chinese foreign asset growth coincided with a policy decision to experiment with alternative ways of managing China’s foreign assets. The creation of the China Investment Corporation (CIC) is but the most visible example of a broader trend. The foreign exchange managed by the state banks has increased as a result of the recapitalization of the China Development Bank (CDB) and the increase in the amount of foreign exchange that the state banks have borrowed from China’s central bank, the People’s Bank of China (PBoC). Moreover, state firms also have been encouraged to increase their foreign investment.
Full article > HERE