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Non-Economic Questions of the Day
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Why China's Wealth Fund is Right to Invest Domestically
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.
