Nationalisation is becoming rather fashionable. State bailouts of banks are all the rage too.
There is just one snag: western institutions are not getting their cash from ministers in London or
Washington, but from functionaries in Beijing.
While Britain’s chancellor still balks at taking Northern Rock into public ownership, his
counterparts in China have no qualms about investing state money in the private sector. This week
Beijing bought a 10% stake in the Wall Street blue chip Morgan Stanley; in May it took a slab of the
private-equity giant Blackstone. Those two deals, worth just over £4bn, were made by the China
Investment Corporation (CIC), a fund set up and run by the government. With over £100bn to burn,
it is bound to make more big deals — and big headlines — over the coming year. CIC is one of a new
breed of sovereign wealth funds (SWFs) created by nations awash with excess cash from exporting
goods or oil. Most oil-producing Arab countries have one, as do Russia, Korea and Singapore, and
the funds are estimated to be worth a total of a trillion pounds. The logic behind them is simple: if
energy-rich Russia is earning around £425m from exports every day, it naturally wants to invest that
money for a higher return. But the impact of these new vehicles is far less straightforward, and it has
largely been left to economics wonks to worry about them (even now, a Google search for “SWFs”
brings up page after page about some graphic-design software). At last, however, they are entering
political debate. The IMF is working on a code of conduct for the funds, while the rich nations’ club,
the OECD, is coming up with guidelines for recipients. Such users’ manuals have their place, but on
their own they are not an adequate answer to the issues raised by SWFs.
At their most basic level, these funds (which are projected to be worth £7.5 trillion within
a decade) embody a shift of economic power from Europe and America to China, Russia and
elsewhere. They sum up one of the global economy's problems too: the west is consuming far more
than it is producing. SWFs are also a new and very different kind of investor.
From The Guardian Weekly, 4/1/2008 (adapted).