Research On China’s Sovereign Wealth Fund

Since the new century, with the global imbalances continuing to fuel and thehigh energy prices, emerging market countries and energy exporting countries hasaccumulated huge foreign exchange reserves. Fiscal surpluses and foreign-exchangereserves sourced sovereign wealth funds are rapidly expanding. The financial crisistriggered by the subprime mortgage crisis continued to deepen. On the one hand, thesovereign wealth fund suffered significant losses. On the other hand, western financialinstitutions were badly in need of cash, which provides the opportunity fordevelopment for the huge sovereign wealth fund. But sovereign wealth funds havecaused concerns in the western countries because of less disclose and lowtransparency about sovereign wealth funds. Sovereign wealth funds have sovereignnature, so the investment host countries suspected that they have political motivation,and tried to hinder the development of sovereign wealth funds through protectionism.Huge foreign exchange reserves enhance the ability of the Chinese governmentto intervene in foreign exchange market and adjust the balance of paymentsimbalances. To react to RMB appreciation pressure, people’s bank of China hasimplemented sterilized intervention for several years, leading to excess domesticliquidity and rising inflation. In order to get rid of this dilemma and improve thepeople’s bank of China monetary policy independence, in2007, China set up its ownsovereign wealth fund to diversify foreign exchange reserves and increase theinvestment yields. China begins to manage foreign-exchange reserves more actively.This essay starts from the general information of SWF. Then we analyze theactuality and problem of china’s SWF on the background of the global imbalances.Finally, by the comparison of the successful SWF of other countries, we put forwardthe policy suggestions to promote the healthy development of China’s sovereignwealth fund, including clearing market positioning, adopting diversified investmentstrategies, making investment schedule and method reasonable, improving risk copingcapacity and improving the performance evaluation mechanism, improving theefficiency of investment operation management, perfect the legal system of foreignexchange assets investment management.