Text of a Feb. 7, 2008, statement to the federal U.S.-China Economic and Security Review Commission by Professor Peter Morici of the University of Maryland's Robert H. Smith School of Business.
What is a sovereign wealth fund? In purest form, a sovereign wealth fund is a pool of resources, owned and/or controlled by a government, invested in public or private assets, including debt instruments, equities and direct investments in property.
Clearly, the China Investment Corporation (CIC) is an example of such an entity, but so, too, are national and subnational government interests in European industrial companies. In turn, the investments of CIC in Blackstone and European companies with part government ownership in U.S. companies would be examples of sovereign wealth investments in the United States.
Also, the California Public Employees' Retirement System (Calpers), which invests widely in equities, and similar foreign national and subnational government retirement systems around the world are sovereign investment funds. Those have holdings in U.S. companies.
My point is that identifying sovereign wealth is usually easy, but identifying sovereign investments that should concern U.S. policymakers is difficult. Clearly, investments by the national government of China and its state controlled companies raise issues, but generalizing policy from those concerns is a tangle of string--pull one piece and you get more string than you anticipated.
U.S. and Foreign Government Policies
As a common law country and culture, much of U.S. policy must be deduced from piecemeal practice and by generalizing from fragments of legislation and policy directives. For example, the U.S. Social Security fund is not permitted to make private investments, in part, because Americans don't want the U.S. government engaged in allocating capital and influencing business decisions in the U.S. private enterprise system. However, U.S. state governments are permitted to do as they please--Calpers is a significant example, and it has not always been silent about the management of U.S. companies. The fact is, with its voting powers, it can't always be silent.
In contrast, in China and Europe, national and subnational governments make investments expressly for the purposes of promoting industries and affecting competitive international outcomes among businesses. Often, earning a decent return on capital is not a motivation; rather, the objective is creating employment or establishing a national presence in an industry that the market would not otherwise support.
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