Why does China promise transparent SWF

Posted in China | 08-Apr-08 | Author: Judith Apter Klinghoffer| Source: History News Network

Yesterday, on 60 minutes the manager of the mega Chinese Sovereign Wealth Fund Gao Xiqing promsed that China is going to make its SWF as transparent as Norway. If he can be trusted, it is good news, indeed as it is going to put enormous pressure on other reluctant SWFs run by autocracies, who are cranking up their opposition to regulations demanding such transparency, to follow suit.

Not that Lesley Stahl acknowledges the basic fact that the Chinese fund is far from the only worrying SWF or the threat such funds pose to the Capitalist system as a whole. On the contrary, she only mentions two other such funds, those of Abu Dhabi and Kuwait and describes them as if they were knights in shining armor rescuers of the American financial system. This ignores a completely different reality reported by Market Watch thus:

Concern in the U.S. regarding the conduct of SWFs has grown since Abu Dhabi Investment Authority, or ADIA, bought in November a $7.5 billion stake in troubled U.S. banking giant Citi.

ADIA, the secretive investment giant controlled by Abu Dhabi's powerful ruling Al Nahyan family, is thought to be the Persian Gulf's largest SWF, with an estimated $900 billion worth of assets.

Why is China being so amicable suddenly? It knows IMF and EU regulations are in the works. It has already expressed its wish to participate in their drafting. China also sees the timing as most advantageous. The soft global economy has increased SWF leverage. No one wishes to rock the financial boat further at the moment and Tibetan protests are undermining China's reputation. Under such conditions a good will gesture seems like a no lose proposition.

These are some of the reasons, a skeptical Larry Summers sensibly urges following the Reagan motto: "Trust but Verify:"

Former treasury secretary Lawrence Summers has been raising concerns about sovereign-wealth funds, so we asked him about Gao’s surprise pledge.

"I think there’s a question as a degree of specificity," Summers said. "But in a way, their willingness to be interviewed and go on your show is probably not something they would do if they thought of themselves as having some nefarious purpose.

"Well, they certainly want to be reassuring," Stahl said.

"I think that is something we should encourage," Summers said. "But, as Ronald Reagan said, 'Trust and verify.' I think this is an issue our government does need to pay close attention to."

Amen! Still, the value of China's willingness to cooperate cannot be discarded especially when contrasted with the behavior of our Middle Eastern "allies."

Judith Apter Klinghoffer is member of the WSN International Advisory Board.