New Trends in China's Foreign Investment Strategy
The International Spectator, Vol. 42, No. 3, pp. 399-407, 2007
10 Pages Posted: 27 Oct 2010
Date Written: September 2007
China now holds the world's largest foreign exchange reserves mainly thanks to dynamic export activities. In order to invest and manage these foreign exchange reserves, the Chinese government recently announced the constitution of a new State Foreign Exchange Investment Company (SFEIC) aimed at improving the yield on them. This new investment vehicle will face multiple challenges ranging from showing solid financial gains to establishing effective rules for corporate governance that guarantee transparency in company management. In addition to the legal aspects, numerous economic and political implications will arise from this new government-controlled tool.
The Chinese government is about to incorporate a new state-owned investment vehicle to manage the vast amount of foreign exchange reserves accumulated by China during the last decade. The company will act as a private equity fund allocating funds to strategic assets and investments. The reaction of the major industrialised states was not surprising given the company's huge investment capacity. These states may face the challenge of balancing competing policy objectives: protecting their internal markets from the potential hegemony of a state-controlled investment company while exploiting the opportunity of a new investment partner. This article assesses the global implications of this new state-owned investment company and reflects on some corporate governance implications.
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