I don’t think SWFs really focus on the same investment targets as traditional private equity, but alternatives are definitely better, at least the small firms could shop around for alternative deals.

Which is why CIC hasn’t asked for seats on the board or pushes for policy changes. As far as CIC investment in a US manufacturing firm, the press will be very good if it generates jobs. The model here is the Haier plant in Charleston or the various Toyota plants in the United States.

As far as private equity. I don’t think that they have too much to worry about from the SWF’s. Direct investment into private equity is hard. On the other hand, private equity funds do have a reputation for being sharks, so if small companies have alternatives, this wouldn’t be a bad thing.

I think the state/private distinction is misleading since I’d argue that the Japanese central government actually has much more real influence on the Japanese economy and its investment flows than the Chinese central government has over its economy.

The Japanese economy consists of a few large companies with interlocking directorships all of which are coordinated through MITI. China doesn’t have anything like MITI, and you have large sectors that are under the effective control of local and provincial governments and hence off-limits from effective central control. There is a lot of bargaining between different ministries and different layers of government that doesn’t happen in Japan, at least in an obvious way.

Also, the Japanese political process tends to exclude foreigners, whereas the foreign investors are part of the Chinese political process. One reason this works to China’s benefit is that in the 1980’s there was really no one in a position of authority that could tell Japan how to manage public relations, whereas the Chinese government very actively gets the opinions of Americans and people within the Chinese bureaucracy have extensive experience in the US (often having studying there), that the Japanese didn’t.

As far as democracy goes, Japan for most of its post-world war II history has been a one party state, and it’s not clear to me that the Japanese government is more responsive to public opinion than the Chinese government is. Japan is less likely to beat up dissidents, but that may be a function of the fact that it is less afraid of those people actually getting any real power.

One should point out that Japan has the world’s largest sovereign wealth fund. It’s investments are domestic, which is why no one notices.

Chinese workers in the export industry are making more money than they ever thought possible. Chinese workers are just as greedy as people on Wall Street. Less capital to work with, but the motivation to get rich is just as strong.

One thing that is interesting is the a graph that I once saw about where the $40 that you pay for a shoe actually goes. The interesting thing is that the person that takes the largest fraction is actually the shoe salesman, and the fraction amount of money that actually goes to Wall Street and executives is smaller than the amount that goes to the shoe salesman or the Chinese worker.

The reason for this is that investors and executives collect a very small fraction of the price of the shoe, but there are millions of shoes. Workers collect a larger fraction of the shoe price, but there are a lot of workers.

The net result of this is that if you got rid of Wall Street, workers wouldn’t be better off by much, and you lose the benefits of what Wall Street really does.

http://www.ft.com/cms/s/0/412752ae-afa4-11dc-b874-0000779fd2ac.html?nclick_check=1

I would feel much better about investment from Richard Branson — or from a transparent and democratically accountable sov. wealth fund, like Norway’s. I do not think the Japan analogy is at all accurate — Japan’s investment in the uS came from private investors, Japan was part of a security alliance with the US and Japan was/ is a democracy. Moreover, Japan’s investments came i think after the yen had been allowed to appreciate, so there was a mechanism in place for adjustment. China’s investments are coming in the absence of any adjustment — there is nothing that suggests China won’t be adding $500-600b to its foreign assets a year, with all the asset accumulation coming from the state.

that is new. that is not japan — the nature of the investment differs (state v private) as does the scale and likely duration of the flow.

but in a broader sense, you are right — I am not thrilled with the broader implications of the United States large external debts. Debtors though are powerless in the global game –

Haha, right. That convert will be worth nothing.

To answer your question Guest: Yes. Remember, these are the same people that created the “one drop rule.”