China defends sovereign wealth funds

BEIJING, Jan 7, 2008 (AFP) – China defended the role of sovereign wealth funds, responding to fears that its own fund, China Investment Corp, might destabilise global markets, state media said Monday. It is in charge of 200 billion dollars — roughly one seventh of China’s forex reserves — and could potentially see even more funds from the forex reserve put under its management in future.

Sovereign wealth funds can help countries allocate resources optimally, the China Business News reported, citing Wei Benhua, deputy director of the State Administration of Foreign Exchange.

Some developed countries have reacted strongly to the investments of various sovereign wealth funds, but actually their long-term approach to investment will not destabilise markets, Wei was quoted as saying.

Just like other equity funds, sovereign wealth funds are market-oriented, and must not be discriminated against, he said.

Neither, he argued, should such funds from developing countries be given less preference relative to those from developed countries.

The newly-established China Investment Corp, or CIC, has triggered concern in international markets since starting operations, leading some countries