One reason it may be difficult to figure out the Chinese government’s "real intentions" is that the Chinese government has yet to figure out what they are, and it can change its mind. Part of it is that the Chinese government consists of a lot of people with a lot of different opinions on what should be done, and people’s minds may change. By the time there is a consensus, things have changed so that things are muddled again.

Looking back, I’d have to say that it seemed pretty clearly the intention in mid-2007 that CIC take over NCSSF, but after the Blackstone debacle, the plans probably changed. I can imagine the meeting in which the head of the NCSSF looks at CIC and says "they want to tell us how to manage our portfolio?"

One thing that has changed a lot in the last six months is that at one time, you could answer the question of "why should the Chinese government keep an arms length relationship from business" with "that’s what the United States does and it works great." After Bear, I don’t think that you can argue anymore that the US government doesn’t intervene massively in the financial system or that non-intervention obviously "works great."

The other arguments that you can try to put against the Chinese government intervening in the financial system are "because its a bad thing that the Chinese government has extra ability to intervene in the global economic system in ways it thinks will benefit China" or "because Americans get worried when the Chinese government gets too powerful" seem awfully American-centric. I suspect that "concentrated Chinese state economic power makes Americans nervous" would be seen by most Chinese as a good thing rather than a bad one.

Not as influential as people think.

First of all, the typical size of an SWF is in the few hundred billion range. That’s about the size of your large multinational corporation. WalMart makes over $100 billion/year. The mortgage market in the US is about $10 trillion, and both Fannie and Freddie each have about $1.5 trillion in securities outstanding.

A single mega-bank has holdings of about a trillion dollars and there are several of those around the world. You have eye-popping numbers for the size of SWF’s, but that needs to be compared with the size of the banks, mutual funds, and multi-national corporations that already exist. Seen from this angle, the SWF’s are certain going to be large players, but they aren’t going to dominate the world.

Which brings up the question of why SWF’s need to undergo more financial scrutiny and transparency than Berkshire-Hathaway or Citigroup. We need to pay special attention to SWF’s because ????

(In the case of CIC, the answer I’d give is that because the foreign exchange is the people’s money so they have a right to know that it is being managed wisely. However that answer gives you a different mix of policies than you’d get if you fill in the blank with other things.

The one answers I don’t think are valid is "because sovereign wealth funds are more prone to cause financial crises than private capital," "because publicly run corporations are inherently badly run and private run corporations are inherently well run" or "I just don’t trust *them* with large amounts of money."

That’s exactly how it looks. That’s more or less how it is. These institutions’ intent (especially the SWFs – perhaps less so for the SOEs and the aggrieved, such as SAFE) doesn’t match their current holdings. My bottom line – which I hope complements, rather than argues with yours – is that holdings analysis for a large number of government-connected Chinese institutions is unlikely to give many useful clues to intent. We’re all going to have to wait for patterns of behaviour to emerge.

Twofish: "About NCSSF becoming CIC, at least that was the plan mid-2007, things might have changed since then….."

I think things have. NCSSF’s senior staff (especially from the exec board, fund management, research and back room operations) were raided hard to create CIC’s management backbone, which may have led to the impression that the two institutions were intended to be more closely related than is in fact the case. Local press reports, in my view, were rather more badly informed than normal, which didn’t help. I think it’s reasonable to say now that the two have a collegial relationship, are likely to link arms when policy issues affecting both arise and share research/resources when assessing fund managers. Beyond those links, they’re wholly separate.

That’s a completely meaningless comment. The thing is SWFs have a few Trillion dollars and that makes them very influential. Their decisions impact the world economy and politics in many ways.

So who cares whether or not "you look at things on a global scale, a trillion dollars really isn’t that much money".

It sounds like arguing for the sake of arguing.

Gillies — i love the phrase Walmartian. nice allusion to martians, and the idea that americans are from mars. One small correction tho. In deflation, there is a run out of financial assets, but not necessarily a run out of cash. Because the price of goods is falling, cash becomes an attractive asset — and it gets hoarded.

When you look at things on a global scale, a trillion dollars really isn’t that much money.

people on this site have hinted that the fed / united states / greenspan / bernanke / whoever – are capable of inflating their way out of trouble. i wonder if anyone still believes this ? (apart from DC of course.) i don’t.

what is bound to happen if you print money in order to consume ? the consumers consume – or if you like, overconsume – and the people who make the stuff they consume amass dollars. can’t help it.

in an ideal world the producers now in turn overconsume the products of the united states and trade gets balanced. but it is not an ideal world, and some nations are less walmartian and less inclined to stuffing themselves with junk than others.

so they have a surplus of the excessive print run in the dollar factory. what happens next ?

1 some gets invested back in u s treasuries etc. which only reinforces the process of overconsumption and surplus accumulation. some is hoarded as surplus reserves – ’surplus’ here means surplus to what you need to counter speculative attack on your currency at times of weakness.

2 some gets invested in commodities. these are going up – because unavoidably in a world of surplus dollars and finite resources, prices of commodities quoted in dollars, rise.

3 so the financial geniuses of wall street (definition of a ‘financial genius’ – a short memory in a rising market ) decide to pile in, thus exacerbating whatever financial rout has been launched by the bernanke helicopter attack.

4 meanwhile the same helicopter attack has holed the dollar below the waterline, and the dollar continues to take water. how else could it be ?

5 thus the process of helicopter rescue is no different from what used to be called ‘debasement of the currency’ which has yielded dividends for kings and princes in the past but only until the peasants rumbled them and cut off their heads.

6 so money printed in order to consume is not – repeat not – free money. on the contrary the long term repayments are substantial. no amount of haranguing the owners and hoarders of the surplus will change this. and among the victims facing payback time will be the very financial geniuses lauded for their investment skills on the upward journey.

7 so emergency helicopter finance is in effect a form of nuclear stealth bombing of the global investment community – with lethal but dangerously attractive ‘ponzi bubbles’ that will continue to arise in market sectors near and far – as long as the minting of debased currency is used as a lever of policy.

8 and when does it end ? it ends when the inflation dazzled financial geniuses are all caught off side, wrong footed, and left high and dry by the spike and deflationary collapse of a global flight out of currency. all currency.

9 "i have a hundred trillion dollars – cash. so, how much for that bag of rice over there?"

’sorry sir – we don’t quote in dollars . . ."

10 how did we get into this ? we allowed a currency that does not hold its value to act as a reserve currency, and ‘a reserve currency that does not hold its value’ is a fundamental contradiction in terms.

- and the way out for the surplus holders ? convey to the u s administration, quietly, that you will commence selling dollars until u s sets interest rates that give at least some hope of offsetting the cost of dollar decline, or better, stimulate a reversal in the fortunes of the dollar, so that it once again becomes a genuine store of value.

.

Reading that raised some hopes, which quickly vanished with:

"Mubadala’s investment in Ferrari likely contributed to Ferrari’s decision to build a theme part in Abu Dhabi."

and

"Dubai’s interest in the NASDAQ stemmed from its desire to cement its position as a regional financial center."

The future is not about theme parks or financial centers. The future is about having food and water. They should be investing in solar water desalinization plants to allow future generations to be able to grow their own food.

Twofish: As long as you have multiple actors, this is a good thing since it means that everyone keeps everyone else inline. – if only that was true

As long as you have multiple actors, this is a good thing since it means that everyone keeps everyone else inline.