Jim Dorn on Sovereign Wealth Paranoia

Jim Dorn on Sovereign Wealth Paranoia

March 26, 2008 0 Comments

(March 26, 2008) – Jim Dorn and I were in graduate school together at the University of Virginia. In addition to being a great guy, he is China specialist at the Cato Institute. Jim’s article in the South China Morning Post on Sovereign Wealth Paranoia is a good antidote to the things we read in the press. Enjoy.


The most recent example of sovereign wealth fund paranoia is the 3Com deal, in which China’s Huawei was denied the ability to make a minority investment in the company. I had the chance to spend a day at Huawei’s headquarters in Shenzhen–impressive company. Similar things are happening in Australia now where the new government is likely to restrict proposed investments in mining companies. This is protectionism in another form.

This is a tricky issue that will be in the headlines for a long time. I think the answer is disclosure, not the straightjacket. What do you think?

JR

John Rutledge

0 Comments

  1. Frank Graziano

    March 27, 2008

    Yes, transparency. Couldn't agree more, John (which is why I hope you'll speak about this at our panel on May 21st).

    While Huawei Technologies is a Chinese operating company - not a sovereign wealth fund per se (though that may be a distinction without meaning in the Chinese economic system) - which was seeking to acquire - in partnership with Bain Capital - a U.S. firm - they were undone by our CFIUS process. The same fate befell the CNOOC in its quest to acquire Unocal a few years back, I think.

    Clearly, we in the U.S. are hyper-sensitive to China, even more so than we were to Japan back in the late 1980s when it looked like Japan, Inc. was on a path to owning much of the U.S. (and given what really happened versus what was feared I think the same can be expected with regard to China in this era). The parallel is amusingly ironic to those of us old enough to recall those times.

    Everyone (i.e., the U.S. and E.U.) is calling for greater transparency in sovereign wealth fund investing, and it is taking place, the recent agreement among the U.S., Singapore and Abu Dhabi being an encouraging case in point. China will be a reluctant follower in this regard, but I expect they will come around and increase transparency eventually.

    Consider, too, that this is an election year marked by protectionist pandering at full throttle. So the political as well as economic (softening economy) and national security elements are aligned to create the "perfect storm" into which any Chinese investment or acquisition in the U.S. must sail.

    Batten down the hatches and wait for clearer skies.


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