Better wealth management
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The establishment of sovereign wealth funds has become an important platform and strategic option for many countries to manage their foreign reserves assets.
According to the US Sovereign Wealth Fund Institute, the value of the worldwide assets in sovereign wealth funds totaled $3.84 trillion by the end of March, 47 percent of the total global foreign reserves. In some countries, such as the United Arab Emirates, the value of such assets is much larger than that of their nominal foreign reserves.
The fast expansion of sovereign wealth funds complies with the strategy of countries seeking to diversify their foreign assets.
On average, global sovereign wealth funds comprise 25 percent bond assets and 45 percent stock assets. In Singapore, for instance, the stock investment under the government investment corporations represent about 40 percent of the country's foreign assets. In Norway, such investments comprise 60 percent of foreign assets.
According to a Morgan Stanley estimate, the value of global sovereign wealth funds has increased $45 billion to $500 billion year-on-year. By 2014, the value is expected to surpass the scale of official global foreign reserves.
China has made much slower steps in this regard, especially in its stock investments. Currently, China has two main sovereign wealth funds: one with assets of $347.1 billion, managed by the China Investment Corporation, a wholly State-owned company engaging in foreign assets investment, and the National Social Security Fund.
However, China's sovereign wealth funds have long attached excessive importance to mobility and security. For example, the China Investment Corporation has invested 87.4 percent of its funds in cash assets and only 3.2 percent in stocks, in sharp contrast to the global average of 25 percent bond investments and 45 percent stock investments.
As its foreign assets continue to increase, China should review its creditor status and pay more attention to how to ensure the steady growth of its hard-won sovereign wealth. To this end, the country should further advance the internationalization of the yuan and more actively cultivate a homegrown financial market.
At the same time, the country should also try to change its established sovereign wealth management model in a bid to strengthen their management and improve the utilization efficiency of its sovereign wealth.
To expedite this process, China should set up a diversified and multilayer foreign reserves management system and strive to expand the bond and stock investment in its foreign assets.
The author is an economics researcher with the State Information Center.
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