• English Site
• > Business
• > China

The Panda Takes on the Bulls and Bears

China Plays the Global Stock Market

By Wieland Wagner in Shanghai

China means business. With the upcoming launch of the first Chinese government investment fund, leaders in Beijing are gearing up to invest China's burgeoning currency reserves on capital markets around the world. But is it a golden opportunity or a threat for the West?

If discretion is any indication of an individual's wealth, then the shadowy Lou Jiwei, 57, Xie Ping, 52, and Wang Jianxi, 56, are very, very rich indeed: Aside from a few basic biographical details, not much is known about the new directors of one of the largest government investment funds in the world.

One worked his way up through the ranks, starting in the Chinese navy and eventually becoming the deputy minister of finance. Another is called "The Iron Fist" because he reorganized much of the Chinese banking system from top to bottom, and now has it firmly under his control. The third is often praised for his "honesty," a personality trait which tends to be the exception rather than the rule among China's political elite.

This discreet trio could soon start shaking up global financial markets, a world which until now has been dominated by high-flying investment kingpins like George Soros and Warren Buffett.

The People's Republic of China has amassed an impressive $1.3 trillion in currency reserves -- more than any other country in the world. Now a sizable portion has been earmarked for profitable investments abroad under the control of Lou, Xie and Wang.

Their agency, the China Investment Corporation (CIC), has $200 billion in capital. The new fund has many in the West nervous about a red tide of communist cash from Beijing flooding global markets -- or at least reshaping them.

Up until now, China has invested two-thirds of its reserves in US Treasury bonds. Thanks to the US dollar's ongoing slump on world currency markets, they've received poor returns. This has prompted the Chinese to try their luck at playing the global stock market. They intend to give the former capitalist class enemy a run for his money, not only as a manufacturer, but also as an investor.

Even before their Chinese investment fund had a mailing address, Lou and his fellow financial wizards landed their first coup. They bought a $3 billion stake in Blackstone, one of the largest US private equity firms, which controls 4.5 percent of Deutsche Telekom shares.

Although the Chinese investors have so far refrained from influencing Blackstone's investment strategy, their collaboration with the kind of aggressive or even predatory investors -- such as the hedge funds popularly known as "locusts" in Germany -- has sparked a heated debate in Germany over the dangers of foreign government investment funds.

Market watchdogs in Berlin, Brussels and Washington want to know what would happen if China -- and perhaps even Russia and a number of Arab countries -- were to go on a systematic shopping spree in Western economies. How much protection can and should local companies receive to prevent authoritarian regimes from influencing financial investments and gaining access to Western knowledge and expertise, and possibly even to sensitive sectors such as telecommunications, energy and defense?

Many German politicians, including party leaders from both right and left, favor granting government protection to key industries. German Chancellor Angela Merkel has asked for concrete proposals to be drawn up by the end of the year.

But it could prove difficult to draw the line between sound government policies and neo-protectionism. What if companies don't want to be saved from foreign investors? And who even knows which countries have plugged cash into which funds? More transparency would certainly help. Not surprisingly, Western fears have been fanned further by the bizarre cloak-and-dagger secrecy surrounding the Chinese government investment portfolio. When asked to comment on the CIC's objectives, a manager responded: "Do you think I want to die?"

China's leadership has been heatedly debating the right strategy for the government investment fund. The new fund has been placed under the authority of Chinese Premier Wen Jiabao. CIC boss Lou has been assigned the rank of a minister, an indication of the high degree of responsibility that he holds. During daily operations, he'll answer to a host of other agencies, including the powerful National Development and Reform Commission, a successor to the former influential State Planning Commission. Even the Ministry of Education wants to have a say in managing the fund.

Every single ministry would love to get its hands on the growing mountain of Chinese currency reserves. Nearly all of them have their own ideas about how to spend this new wealth. Vice Premier Zeng Peiyan has suggested that China should invest in natural resources to increase its strategic reserves. Other high-ranking party officials would rather see the country acquire shares in high-tech companies to help China more rapidly close the gap with leading industrialized nations.