China Investment An Open Book?

60 Minutes: Sovereign-Wealth Fund's President Promises Transparency

(CBS)  Former treasury secretary Lawrence Summers has been raising concerns about sovereign-wealth funds, so we asked him about Gao’s surprise pledge.

"I think there’s a question as a degree of specificity," Summers said. "But in a way, their willingness to be interviewed and go on your show is probably not something they would do if they thought of themselves as having some nefarious purpose.

"Well, they certainly want to be reassuring," Stahl said.

"I think that is something we should encourage," Summers said. "But, as Ronald Reagan said, 'Trust and verify.' I think this is an issue our government does need to pay close attention to."

Summers is pushing for an official code of conduct for sovereign-wealth funds. The International Monetary Fund is working on writing some rules, but Gao thinks that's unnecessary.

"Why do you need a law like that? That law will only hurt feelings," Gao said. "It's not economic. It doesn't make sense. Politically it's stupid."

Stupid and unfair, he says, since American hedge funds and private equity firms don't have such a code.

"If you make some kind of, you know, someone singled out as a bad boy then that becomes a problem emotionally," Gao said.

"There was never a call for a code of conduct until China got set up a wealth fund," Stahl pointed out..

"Right. I personally don't have a problem with it, really. You know?" Gao said. "But that's why a lot of other Chinese people are telling us that, 'Look, you know, you guys should be against it. You should stand up against.' I said, 'Why should we bother?'"

"Does the IMF have the power to enforce a code of conduct anyway?" Stahl asked.

"I don't think so."

"Is there any chance on this earth right now, that we could ever say, 'Look, if you don't agree to a code of conduct, even voluntary, you can't invest in our companies.' It's self-defeating, right?" Stahl asked Summers.

"We could say it, but it wouldn't serve our interests at several levels," Summers said. "It would mean that Americans would pay more for goods. It would mean that our interest rates would be higher."

In other words, we’re all but dependent on Chinese investments. Beyond this fund, China holds half a trillion dollars in U.S. Treasury bonds. For that reason economist Navarro says they have us over a barrel. If they don’t like our behavior, he says all, they have to do is dump all their U.S. investments. It’s known as the financial nuclear option.

"What would that do? That will cause interest rates to spike. Mortgage rates to spike. Inflation to spike. The dollar to go through the floor. The stock market to go into chaos," Navarro said. "We would be in deep, deep, deep trouble."

"The nuclear option, financial nuclear option is China’s pulling all its money out of U.S. treasuries," Stahl said to Gao.

"Philosophically everything's possible in this world," Gao said. "But that's so unlikely that, you know, if we function on that thing, we just may as well go home and not doing anything."

Gao isn't going home. He says his fund is an extension of trust, not the betrayal of it. And to prove it, despite losing money here, he just made another investment by buying over $100 million worth of shares in Visa.

[cmg881]

"The first step is to outlaw and stop sovereign wealth funds altogether." -- SharnCedar

That''s like saying we should outlaw rich people or bad weather. How would we even begin to "outlaw" something over which we have no jurisdiction? And who would do it? Washington? The "international community" (whatever that is)? There''s a reason these funds are called "sovereign": They are arms of sovereign governments, which may create as many SWFs as their reserves allow and use them for whatever purpose they wish. If by "outlaw" you mean the U.S. or some international grouping (the OECD?) should prevent SWFs from buying locally resident firms, that raises other questions. What of the free-trade principles we are constantly lecturing the rest of the world about? What about the SFWs of Canada or Norway, whose capital we could surely use and who are eager to invest in U.S. assets? Ms. Stahl''s report, and much else that has been written about SWFs, tends to simplify the issue as a matter of benign, free-market economies being threatened by predatory foreign money. It''s not as simple as that. But then, there''s very little that TV "journalism" can''t boil down to some misleading simplicity.

[sharncedar]

"Although we live in a democracy, we essentially live in an economic anarchy. "

Posted by rharm888 at 05:01 PM : Apr 07, 2008

Precisely, as opposed to the Chinese system of a directed and controlled economy whose purpose is to a military and racial conquering of nearby peoples such as the Tibetans and the Uighurs and the Taiwanese.

Anarchy as you call it, if practiced by every nation, is the greatest good for the whole world. Then each individual can contribute based on their ability. This is a "flaw" in America only when cheater countries exist, such as India and China. Thus for the common good, we need to stop the "cheaters" or else all of us must become cheaters too to survive.

It''s like the prisoner''s dilemma in game theory. Do we have the will to work together to stop the cheaters for the common good? Or will they prevail?

The first step is to outlaw and stop sovereign wealth funds altogether.

[user168-2009]

So, stop the dumb war that is wasting trillions of U.S. dollars!

[rharm888]

This interview illuminates several flaws in the U.S. System which have more to do with American attitudes than with economics.

1. Money is only as good as what it represents, thus the declining value of U.S. Goods & Services is only represented economically. A gallon of gas, whether it cost $0.15 or $5.00 /gallon is still only a gallon of gas.

2. Our competitive economic system has made us paranoid. If U.S. companies were competent, Chinese companies wouldn''t have to bail them out.

3. There are serious flaws in the U.S. Legal System, Corporate America, and the U.S. Educational system which prevent necessary changes and inhibit new ideas/industry. Although we live in a democracy, we essentially live in an economic anarchy.

[lalinda4]

Dear Sir,
Borrowing from China might work short term but you''re going to have to get Fed Chm. Bernanke to quit lowering the CD rates because it''s not going to get the economy going. There''s no guarantee that they are going to pass enough through to the borrowers. I understand the investment bankers that are involved in credit cards are even raising their interest rates. He''s bailing out the wrong people and the Fed still isn''t putting regulations in place to stop what''s going on. Too many lobbyists. The only thing that would change the investment banks technique would be if they nationalized one when they got in trouble like England did with Northern Rock in February. Look it up on the Web.
Yours truly, Disgusted Middleclass Taxpayer

[jeprox1]

Before I came to the US, I lived in a small town in the suburbs of Manila. The town called Marikina was known for making world class hand made shoes. We own a shoe factory back then. We buy our raw materials, as most factories did, from chinese suppliers. Later on, the chinese hoarded the materials and sell it for more than double the price later on, killing all the shoe factories in our town. Now, non of the shoe factories is owned by the locals in my town. Guess who owns the factories now?

I hope that a similar thing won''t happen here in the states.

[missingamerica]

On the one hand, we have the open model of an economy and a people, the United States.

Posted by SharnCedar at 01:20 PM : Apr 07, 2008

Well, not counting things like hedge funds, which have resisted oversight - with this Administration''s assistance - to even the extent that stock-issuing corporations must undergo.

And now we all have to pay huge sums of money for the havoc wreaked by just that one little piece of the hidden powers that control our economy...

[sharncedar]

There is a dramatic struggle in ideologies on the world stage. On the one hand, we have the open model of an economy and a people, the United States. A country that allows unlimited immigration, doesn''t restrict the commerce or trade or access to its markets, and gives legal rights and protections to its citizens.

On the other hand we have the Chinese model. Their markets are closed. Racial minorities are shot in the steeets of Tibet. They don''t allow the free movement of people, commerce, or ideas. Workers are without basic human rights, they live and die at the whim of the state or worse of petty corrupt local officials.

Every time it appears to the world that the United States is failing, it will encourage so many nations to adopt the ruthless statism of China. Men like Mugabe follow the Chinese lead already, but other countries hang on the brink, such as South Africa.

This is every bit as dramatic as the cold war, and unfortunately the Chinese are winning in a runaway victory at this time. The fate for the world will indeed be ugly. We must insist that the concept of a "sovereign wealth fund" is an attakc on the open market concept, that it is an assertion of the rights of a ruthless state over the rights of people and commerce, and if we do not fight this thing with every effeort of our system we ill fall into the ultimate darkness, to die along side the other forgotten races killed by the Chinese or other nationalistic haters.

[onthebeat-2009]

Reckon we''d take advantage of China in the way some are suggesting they might do to us? How about America taking some responsibility for this mess we''re in right now.

[mrsweeney8]

Ms. Stalh,

People like to compare these current concerns with US complaints about Japanese investments in the US 15 years ago. Sony is not the Japanese government. Sony is a corporation motivated by profit. The Chinese Sovereign Wealth Fund represents the Chinese government. If California would change lucrative investments in Iran and Darfur for political reasons, why don''t we think China would ever do this? And their motivations aren''t as noble as CalPERS'' was. CalPERS tried to influence these countries. Do we really think China would never try to influence our companies or try to manipulate our economy? They''re influence will only grow from where it is today.

The answer is to spend no more than we earn. Period. And don''t give away $450 billion when you have to borrow to do that. Guess who''s lending the money for that stimulus?

[b-4-china]

Ahhhh...What a plesant interview by China''s Sovereign Wealth Fund President Gao Xiging. I can''t understand all the fuss with Mr. Xiging wanting to invest in Wall Street. Don''t we invest in China each and every day we shop for goods? Hasn''t our corporations gone abroad investing in other countries? Chill out America aren''t we all about money anyway?

[b-4-china]

Ahhhh...What a plesant interview by China''s Sovereign Wealth Fund President Gao Xiging. I can''t understand all the fuss with Mr. Xiging wanting to invest in Wall Street. Don''t we invest in China each and every day we shop for goods? Hasn''t our corporations gone abroad investing in other countries? Chill out America aren''t we all about money anyway?

[franktrotti]

DOES ANY BODY KNOW CIC WEB SITE ADDRESS

[cmg881]

Ms. Stahl, et al:
Your report neglected to mention a very important line of defense against national-security threats that might arise when foreigners buy U.S. assets, an omission that effectively overstates U.S. vulnerability to SWFs. That line would be the Committee on Foreign Investment in the U.S. (CFIUS), a multi-agency panel, chaired by the Treasury Dept., that examines the national-security implications of foreign acquisitions, as it did in the 2006 Dubai Ports World deal. The CFIUS net will not necessarily capture every risk inherent in cross-border deals. It%u2019s not meant to. But the U.S. is not bereft of protections in this regard, as some might think after watching your report.

Cheers,

Chris

[thuong2]

What are you thinking asking them to be transparancy? We are the begger, can''t be the choser. We are no longer in the driver seat!

[cmg881]

Ms. Stahl, et al:
Your report neglected to mention a very important line of defense against national-security threats that might arise when foreigners buy U.S. assets, an omission that effectively overstates U.S. vulnerability to SWFs. That line would be the Committee on Foreign Investment in the U.S. (CFIUS), a multi-agency panel, chaired by the Treasury Dept., that examines the national-security implications of foreign acquisitions, as it did in the 2006 Dubai Ports World deal. CFIUS%u2019s net won%u2019t necessarily capture every risk inherent in cross-border deals %u2013 it%u2019s not meant to. But the U.S. is not bereft of protections in this regard, as some might think after watching your report.

Cheers,

Chris

[bgwinnett]

They can have Blackwater and Haliburton if they want.

[random_radar]

We said "Buy American!" and China listened...

But they thought we said "Buy America!"

Hey, but you can''t blame them for buying our country--we mortgaged it and went bankrupt and now our souls are sold.

Learn to speak Chinese if you want opportunities for advancement at work.

[forthepeopl1]

buy buy america..

[dapymp]

What does Republican or Democrat have to do with this.

Remember Bill Clinton and John Huang? Who was MFN (Most Favorite Nation) when Bill was in charge? Did he challenge China on Taiwan? Have you heard Bill Clinton''s speeches outside the US?

DO you know any "poor" democrats? Have you seen the Clintons''s Tax Returns?

Who does Pilosi''s and Feinstein''s Husbands do business with?

I think all people have greed ... don''t just chalk it up to Republicans.

And...selling out America? I think the democrats have a lot more to do with that than Republicans.