With foreign reserves crossing $3 trillion and recent announcements of new and revitalized SWFs, it’s perhaps fitting that I should come across a paper by Jean-Marc Blanchard (in the Chinese Journal of International Politics) that investigates the role of China’s SWFs in the country’s ‘Grand Strategy’. But before you get too worked up, I should say that the paper’s primary focus appears to be about extinguishing Western anxieties over China’s SWFs and in particular the CIC. Here is some summary blurbage:
“This article examines how China is using its SWF and RMB policies as part of its aforementioned grand strategy to realize such security interests as national independence, regime preservation, prestige, and economic modernization. It also demonstrates that worries about the political ramifications of China’s SWF and RMB are overblown.”
“Contrary to what many perceive…China has not been aggressively using the CIC to advance its grand strategy. Instances where it has been used in this vein have been largely in support of preserving China’s domestic economic modernization/regime…there are constraints on the ability of Chinese elites to wield the CIC as a grand strategy device, and that using it that way might hinder China’s use of it in others. Besides these considerations, the CIC’s poor first-year investment performance, as earlier mentioned, makes problematic the idea of the CIC as a monolith moving according to a master plan wherein many domestic constituencies have their own ideas on how the CIC should use its funds, and others demand that the CIC deliver good investment returns.”
I think this last point is compelling: The CIC faced considerable domestic ire over poor investment returns in its initial year. So, if the domestic constituencies won’t tolerate poor returns, the CIC really doesn’t have much room for playing around with non-financial objectives. That’s not to say that strategic objectives don’t fit into the investment calculus somewhere, but it seems that good returns are necessary for the CIC’s domestic legitimacy. That should, in theory, alleviate at least some Western concerns about the CIC. (Even if other, less transparent, entities are perhaps another matter altogether.) Get the paper here.
This post originally appeared on the Oxford SWF Project website.