The point I was making was that if China wanted to simply pump money into foreign expansion, there would be no reason for it to create the Chinese Investment Corporation or deal with Wall Street at all. The fact that the Chinese government has started CIC and is courting Wall Street means that its just not trying to do what a lot of people are worried about it doing.

You don’t need Wall Street investment bankers if you want to issue a $2 billion line of credit at 2% interest to Angola (which is what the Exim Bank has done.)

bsetser: incidentally, the CIC almost certainly will be supporting cHinese SOEs expanding abroad. See China railways.

China Railways is I think an example of how CIC *isn’t* supporting SOE’s expanding abroad. The money that China Railways Group got from the IPO is going to be used for domestic railway construction and China Railways has no plans that I know of for major foreign expansion.

If an SOE wants $600 million to build a railroad in Africa, it’s not going to go to CIC. It will go to the Exim bank.

2fish — any index fund. doesn’t matter much.

agree that China could always hand $100b over to exim or a state bank (aBC?) if it wanted to … it doesn’t solve the problem, as you note. but it helps i think to have clearer distinctions between different functions.

incidentally, the CIC almost certainly will be supporting cHinese SOEs expanding abroad. See China railways.

Or just don’t do it. Personally, I don’t think that it would be a good idea for CIC to fund SOE’s overseas expansion, but I really don’t see the point in saying that it won’t.

bsetser: I would like to see the CIC adopt a governance structure that puts it at arms length from the government

Done.

bsetser: invest only in index funds

Which index? Small cap? Large cap? Emerging markets?

bsetser: and leave management of the state banks and support of SOEs investing abroad to an entirely different agency.

Management of the state banks is done by the management team of those banks and those are separate from the shareholders. Support of SOE’s investing abroad is done by the China Export Import Bank.

This doesn’t resolve the problem. Since the Chinese government could very well say “we won’t use CIC for SOE investment support” but here is $100 billion to the China Exim bank.

It’s easy for a fund to manipulate the market. Trouble is that it is very hard to do so without either attracting attention or shooting yourself in the end. Fund takes small company and pushes the price up. Easy. Now how do you make money off of this? Relatively hard. There are some ways of doing it involving “pump and dump” or “insider information” but there are established rules against that that more or less work, and in the case of “pump and dump” you can’t do this sort of thing quietly.

And we’d all like a free pony every month, but those nasty Chinese won’t give us one.

Brad, I love your work but I don’t get your saving the poor Chinese from themselves angle. If the government is losing a percentage on their investments in exchange for providing employment it is a wash to the Chinese people.

Also sounds condescending and disingenuous. When was the idealology of doing it for the good of the people last used? Operation Iraqi Liberation. Ask an Iraqi how that worked out.

Your thoughts that the Gulf funds should be appreciating their currencies, and dispersing their wealth to the masses, make sense.

But the situation is not the same in China, I am not convinced it is really in their interest to appreciate. Perhaps that idea will become sharpened here to a point where it will also be convincing to the Chinese.

Analogous to the television show, “Deal or No Deal”, I have an interesting proposition for you. Since we know Wall Street Hedge Funds are also less than transparent, in exchange for full public disclosure by the China CIC of asset holdings, how about full disclosure from the Wall Street Hedge Funds involved in the currency attacks that precipitated the 1997 Asian financial crisis. The trio of Hedge Funds include Soros’ Quantum Fund, James Robertson’s Jaguar and Tiger funds and Moore Capital Management, as well as, according to reports, the Connecticut-based LTCM hedge fund of John Merriweather. It is a well established fact that these Hedge Funds enjoyed a close personal relationship to high level members of the former Clinton Administration. It is estimated that the Hedge Fund trio reaped an estimated $10 billion in profit from the illegal manipulation of currency markets. Both former President Bill Clinton and former Treasury Secretary Robert Rubin would be required to testify under oath either their knowledge of, or tacit approval of the illegal currency scams.

http://www.financialsense.com/editorials/engdahl/2008/0123.html
The 1997 Asia financial crisis and the ensuing Russian state debt default of August 1998 created a sea-change in global capital flows to the advantage of the dollar. With Korea, Thailand, Indonesia and most emerging markets in flames following a coordinated, politically-motivated attack by a trio of US hedge funds, led by Soros’ Quantum Fund, James Robertson’s Jaguar and Tiger funds and Moore Capital Management, as well as, according to reports, the Connecticut-based LTCM hedge fund of John Merriweather.

The impact of the Asia crisis on the dollar was notable and suspiciously positive. Andrew Crockett, the General Manager of the Bank for International Settlements, the Basle-based organization of the world’s leading central banks, noted that while the East Asian countries had run a combined current account deficit of $33 billion in 1996, as speculative hot money flowed in, “1998-1999, the current account swung to a surplus of $87 billion.” By 2002 it had reached the impressive sum of $200 billion. Most of that surplus returned to the US in the form of Asian central bank purchases of US Treasury debt, in effect financing Washington policies, pushing US interest rates way down and fuelling an emerging New Economy, the NASDAQ dot.com New Economy IT boom.

The Clinton Administration was dedicated to advancing the interests of American world financial domination in a nation whose national economic base was largely destroyed in the years following 1971.