Keith Bradsher reports that China’s
$200 billion sovereign wealth fund will be investing mainly in China, its
much-ballyhooed stake in Blackstone notwithstanding. This is a smart and sensible
decision. As Sudip Roy says
in this month’s Euromoney, it can often make sense for emerging-market funds
to be more domestically focused:
Unlike Norway, for example, whose economy has matured to the point where
recycling the government fund’s wealth back into the country would probably
do more harm than good, Brazil’s emerging economy would be arguably
better served if its sovereign fund had a bias towards local investments.
That type of policy would provide a boost to economic development, growth
and diversification.
Bradsher concentrates in his article mainly on the political downsides of investing
abroad, rather than the economic upside of investing domestically. Now it’s
true that China, with its enormous domestic savings rate, needs less domestic
investment than does Brazil, whose domestic savings rate is minuscule. But if
the fund can help keep the Chinese banking system solvent, that’s a pretty good
outcome right there.