Sovereign Wealth Fund Institute

Reuters reports that, “OPEC oil exporter Kuwait is looking to raise its stake in the Industrial and Commercial Bank of China(ICBC) and invest in Chinese energy and industrial sectors, its finance minister said on Friday. Speaking to Reuters on the sidelines of the World Economic Forum at the Dead Sea in Jordan, Mustapha al-Shamali also said the world’s fourth-largest oil exporter would not reduce its dollar-denominated assets. Kuwait is home to one of the world’s largest sovereign wealth funds, the Kuwait Investment Authority (KIA).

‘We have an investment in ICBC. We have a portion of it and we are going to enlarge it,’ Shamali said in an interview, without disclosing the size of the stake.

‘We could get our share from the market,’ he said.”

read more: Reuters

Li Yong

AFP reports that, ” China called Sunday for reform of the global currency system, dominated by the dollar, which it said is the root cause of the global financial crisis.

‘We should attach great importance to reform of the international monetary system,’ Chinese Vice Finance Minister Li Yong told the spring IMF/World Bank Development Committee meeting in Washington.

A ‘flawed international monetary system is the institutional root cause of the crisis and a major defect in the current international economic governance structure,’ Li said, according to a statement.

‘Accordingly, we should improve the regulatory mechanism for reserve currency issuance, maintain the relative stability of exchange rates of major reserve currencies and promote a diverse and sound international currency system.’

As the world’s main reserve currency, US dollars account for most governments’ foreign exchange reserves and are used to set international market prices for oil, gold and other currencies. As the issuer of the key reserve currency, the United States also pays less for products and can borrow more easily. Li did not name the dollar but in late March the People’s Bank of China Governor Zhou Xiaochuan said he wanted to replace the US unit which has served as the world’s reserve currency since World War II.”

read more: AFP

According to Xinhua, “China said Friday that its investments of foreign exchange reserves remained profitable last year despite the global financial crisis that sent financial assets shrinking in value, dispelling concerns of huge losses with such investments.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Press release states “Today I approve the application by Hunan Valin Iron and Steel Group for up to a 17.55 per cent shareholding in Fortescue Metals Group, subject to the formal and strict undertakings I have sought from Hunan Valin, and which have also been agreed to by Fortescue Metals Group.

These undertakings are as follows:

Any person nominated by Hunan Valin to Fortescue’s board will comply with the Director’s Code of Conduct maintained by Fortescue;
Any person nominated by Hunan Valin to Fortescue’s board will submit a standing notice under the Corporations Act 2001 of their potential conflict of interest relating to Fortescue’s marketing, sales, customer profiles, price setting and cost structures for pricing and shipping; and
Hunan Valin and any person nominated by it to Fortescue’s board will comply with the information segregation arrangements agreed between Fortescue and Hunan Valin.

Hunan Valin will report to FIRB on its compliance with these undertakings. These undertakings ensure consistency with Australia’s national interest principles for investments by foreign government entities, which I set out in February 2008. They ensure the appropriate separation of Fortescue’s commercial operations and customer interests, and support the market-based development of Australia’s resources.

Penalties for non-compliance with these undertakings are contained in the Corporations Act 2001 and breaches of the Code of Conduct can lead to the director’s removal from the company board.

I note Fortescue’s involvement in negotiating the above arrangements, and its responsibility to its shareholders for enforcement of the company’s Directors’ Code of Conduct.

Under the proposal, Fortescue has agreed to issue new shares to Hunan Valin to raise funds for the next expansion phase of its iron ore mining operations in the Pilbara. Hunan Valin also intends to acquire some shares from other shareholders. Consistent with this approval and with its agreement with Fortescue, Hunan Valin will not hold above 17.55 per cent in total. It is on these bases that I have approved the acquisition under the Foreign Acquisitions and Takeovers Act 1975.”

read more: Press Release – Australia – Treasurer

Zhou Xiaochuan

Zhou Xiaochuan writes, “the outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.”

read more: Paper: Reform the International Monetary System

read more: People’s Bank of China

The NY Times reports that ,”the Chinese premier Wen Jiabao expressed concern on Friday about the safety of China’s $1 trillion investment in American government debt, the world’s largest such holding, and urged the Obama administration to provide assurances that its investment would keep its value in the face of a global financial crisis.

The Chinese premier Wen Jiabao spoke at a news conference on Thursday at the end of the Chinese parliament’s annual session.

Speaking at a news conference at the end of the Chinese parliament’s annual session, Mr. Wen said he was worried about China’s holdings of Treasury bonds and other debt, and that China was watching United States economic developments closely.

‘President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures,’ Mr. Wen said. ‘We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.’”

read more: NY Times

According to Reuters, “China’s foreign exchange watchdog, the State Administration of Foreign Exchange, will cut back on overseas equity buys next year after suffering major losses on the collapse of U.S. lender Washington Mutual, according to sources.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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Bischoff (Citigroup)

MarketWatch is reporting that, “State investment funds from China and Russia are the main concern in the growing debate over whether to regulate so-called sovereign wealth funds, the chairman of Citigroup Inc., Win Bischoff, said Tuesday.”

As China’s reserves continue to grow at an astonishing rate, there investment in US securities continues to grow as the US continues to have a large current account deficit. Experts from the Peterson Institute say that “the United States must import about $1 trillion of foreign capital every year” to finance the current account deficit.