China Asks for Fair Treatment of Wealth Funds

Rich nations should not discriminate against sovereign wealth funds from the developing world and must guard against protectionist sentiment, a senior Chinese official said in remarks published on Monday.

Sovereign wealth funds are a key source of global liquidity, which can help alleviate the current credit crunch, and their longer-term investment strategies help iron out market fluctuations, Wei Benhua, a senior official with China's currency regulator, wrote in the China Business News.

The $200 billion wealth fund launched by China last year has bought stakes in Morgan Stanley and Blackstone while taking pains to argue that it will play a benign role in global markets.

"The newly established China Investment Corp has been grabbing global attention, and some certain countries are intentionally spreading the idea of a China threat," said Wei, vice head of the State Administration of Foreign Exchange.

Politicians in a number of Western countries have expressed concern that foreign governments could use sovereign wealth funds to seize stakes in strategic industries and some have called for controls on their investments.

Wealth funds, run by countries from Australia to Russia, have grown dramatically in the past decade. Worldwide, they manage about $2 - $3 trillion and that is on track to hit $10 trillion by 2012, according to International Monetary Fund (IMF) estimates.

"The international society should take a clear-cut stand against protectionism in various forms in both investments and the financial sector," Wei wrote.

He said sovereign wealth funds should boost their transparency but cautioned against haste in doing so, saying this could lead to market panics.

Wei said the CIC would respect all laws in countries in which it invests and actively participate in global discussions to ensure that regulations covering sovereign wealth funds benefit its own development.

The Group of Seven (G7) in October called on the IMF to create best practice guidelines for these funds, building on existing best practices for foreign exchange reserve management.

The spreading fallout from the U.S. subprime crisis has made the task of governments managing their foreign exchange reserves all the more challenging, he said.