The Chinese efforts to coordinate sovereign investing present a potentially substantial advance in the integration of programs of sovereign investing, public policy, and private markets. This integration suggests that it may not make sense to segregate SWF regulation from other investment vehicles. Instead it may be possible for a state to employ a policy of politically motivated interventions in foreign markets and markets for control that is, simultaneously, financially motivated. It follows that sovereign investing may not be adequately regulated through frameworks that pretend sovereigns can detach pieces of themselves and operate them as if they had no connection to them or interest in them. At the same time, this integration suggests that sovereign investing is, to some extent, a captive of the markets in which they operate—sovereign investment entities abroad will be subject to those host state national regulatory regimes that affect, in equal measure, all economic organs and the markets in which they operate. Yet, the measure of that success, actualized in conventional terms, may continue to reflect a public and sovereign purpose effectuated within the territory of competitor sovereigns. The rise of sovereign market participatory entities, operating as a coordinated network of both sovereign and private actors, seeking to maximize economic and political objectives, will require a responsive regulatory framework substantially different from those currently in gestation. Larry Catá Backer, Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State Owned Enterprises and the Chinese Experience. Transnational Law & Contemporary Problems, Vol. 19, No. 1, 2009; Penn State Legal Studies Research Paper No. 12-2009
“[CIC] made an investment through a wholly-owned subsidiary in the amount of USD 1.58 billion in AES Corporation (“AES”). At close, CIC will acquire 125.5 million shares of AES stock for USD 12.6 per share, representing approximately 15% equity interest in the company. According to the investment agreement, CIC will nominate one director to the AES board.”
“A deal with AES would demonstrate China's increasing comfort with politically sensitive investments. Historically, the U.S. has been leery of any Chinese investments in American infrastructure companies, fearing potential espionage. …… In 2005, China created an uproar in the U.S. when a state-owned oil company made a bid for California-based Unocal Corp. But fears in the U.S. and elsewhere about China taking control of major companies have subsided in recent years, largely because tight credit has made both companies and governments eager to gain access to Chinese capital.”
“The shares sold by interests associated with Mr. Elman represent a small fraction of his holdings in the Noble Group and are only the second such sale by Mr. Elman since he founded the Group. It is the intention of Mr. Elman to use some of the proceeds associated with the sale of his interests in Noble to fund a charitable foundation with a focus on fostering international relations amongst Asian nations.”
“With 2008 annual revenues exceeding US$36 billion, Noble continues its transition to owning and managing more strategic assets, sourcing from low cost producers such as Brazil, Australia and Indonesia and supplying to high growth demand markets including China, India and the Middle East. Today, Noble has interests in coal and iron ore mines, grain crushing facilities, sugar and ethanol plants, fuel terminals and storage facilities, vessels, ports and other infrastructure to ensure high quality products are delivered in the most efficient and timely manner to its customers.”
“The US$ 150 million in Phase I investment includes $ 100 million for the purchase of equity stake from Russian shareholders and $ 50 million for Nobel's operating expenses. In Phase II, the remaining US$ 150million is to be used within 9 months for acquiring and developing oil reserve assets (approximately 150 million barrels) in close proximity to Nobel's existing oilfields.”
The rapid ascent of the CIC proves that, despite the global financial turmoil, China's economic power is intact. In 2009, China may have supplanted Japan as the world's second-largest economy and edged past Germany as the world's leading exporter. Meanwhile, the country's foreign exchange reserves have continued to set records, recently reaching $2.4 trillion, almost all of which has been accumulated during this millennium. In fact, rather than stemming the CIC's growth, the global financial crisis has had a profoundly positive effect on China's SWF. Although the fund struggled to overcome a series of managerial, financial, and geopolitical hurdles upon its creation, the financial crisis set the stage for a remarkable transformation. Now, the fund has matured into perhaps the world's largest and most influential strategic investor. Ashby Monk and Gordon L. Clark, Singing in the Rain: How China's fund of billions prospered during the financial crisis -- and what that means for the future of Asia's fast-growing economic superpower, Foreign Policy, Jan. 24, 2010.The Chinese sovereign wealth fund moves over the course of the last six months suggests not merely power within global private markets, but also the mechanics of an operation that are neither entirely public nor private. The size, strength and character of Chinese sovereign investing is now poised to change the nature of our understanding of "private" global markets in ways that will pose a challenge not to states, but to the power of private capital. Monk and Clark suggest "Perhaps the crisis illustrated to many the benefits of having a fund that can underwrite a public purpose and facilitate long-term planning, when compared to the apparent failure of our politicians and financial institutions to look beyond the present election or fiscal quarter." Id. That is certainly true; but it also suggests a growing acceptance of sovereign activity in markets, the consequences of which may be both hard to gauge and will affect everything from conceptions of sovereign immunity, to the governance role of private institutions. Most importantly, where global regulators become major players in the markets they regulate (and now increasingly in the form of transnational norms) the conceptual basis of globalization dominant since the 1980s may also give way to emerging realities. Jurists in the European Union developed the notion that a state may only rarely (and with difficulty) shed its sovereign and regulatory character even when engaged in private market activity especially within its own regulatory space. Larry Catá Backer, The Private Law of Public Law: Public Authorities as Shareholders, Golden Shares, Sovereign Wealth Funds, and the Public Law Element in Private Choice of Law. Tulane Law Review, Vol. 82, No. 1, 2008 In such a context state investment inevitably had a distorting effect on the operation of private markets to its advantage. If this notion is correct, then the extension of global sovereign investing in transnational markets regulated by its principal political players will require close scrutiny as it developes over the next half decade.