https://www.city-journal.org/article/chinas-cash-for-power
Sovereign Funds: How the Communist Party of China Finances Its Global Ambitions, by Zongyuan Zoe Liu (Belknap Press, 288 pp., $39.15)
Sovereign wealth funds (SWF) have long been an anomaly in market economies. In 2008, the U.S. Treasury Department defined SWFs as “government investment vehicles funded by foreign exchange assets, which manage those assets separately from official reserves.” Such funds blur the traditional distinction between the state, which serves as market regulator and guarantor of rule of law and property rights, and the marketplace, in which private actors freely compete within parameters established by law and morality.
Countries’ reasons for creating such vehicles vary. Norway established its Government Pension Fund Global to invest tax and license revenue generated by its oil sector and grow its national pension funds. Other nations have used SWFs as instruments for pursuing industrial policy at one remove from direct government control.
These funds’ intrinsically political character raises questions about their marketplace operations. As state-owned entities, they will not have the same incentives and priorities as private actors. For example, SWFs are less likely to prioritize profit-maximization, and may not even be required to do so. Some, for instance, primarily function as another macroeconomic tool for governments to try and smooth the business cycle’s ups-and-downs. SWFs are also subject to political pressures, encouraging investment based on the regnant government’s current needs, which may not be the same as pursuing long-term economic growth.
Then there are concerns about these funds being weaponized by their government owners. What happens if a SWF decides, at the behest of its controlling government, to use its stake in a publicly traded corporation in another country to pursue specifically political goals in that nation? And what if the SWF’s owner also happens to be an authoritarian regime that does not consider itself bound by Western norms of government accountability and transparency? And what if that same government uses the SWF to serve geopolitical ends that clash with other states’ national-security interests?