Beware of power shift in world finance

Marketplace Staff Sep 11, 2007
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Beware of power shift in world finance

Marketplace Staff Sep 11, 2007
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KAI RYSSDAL: Mr. Bernanke wasn’t the only central banker who had something to say today. Jean Claude Trichet runs the European Central Bank. He said in Brussels this morning he’s going to keep an eye on fallout from the U.S. subprime mortgage debacle before he decides what to do about interest rates over in his part of the world. Everybody from Bernanke and Trichet down to the newest fund manager on Wall Street is worried about subprimes and the liquidity crisis. But commentator Bruce Stokes says there’s an even greater challenge lurking out there.


Bruce Stokes: Power is shifting rapidly in the world of high finance from private actors to public ones.

Arabs, Russians and Chinese have now amassed a financial war chest of $2.5 trillion over and above their foreign reserves. Abu Dhabi alone has salted away enough cash to purchase the entire economy of Australia, with enough change left over to buy Denmark.

These sovereign wealth funds could hold $12 trillion in assets by the middle of the next decade. That’s enough to fuel quite a spending spree.

Yes, such worries aren’t new. Remember the hyperventilation about Arabs buying American farms in the 1970s, or the Japanese buying Rockefeller Center in the 1980s? Those fears were grossly overblown.

But sovereign wealth funds are different. These are bigger pots of money than any hedge fund. That means any investment mistakes are likely to rattle markets.

These are also government investors, not private ones. Will Moscow and Beijing use their newfound wealth to pursue commercial goals or national security aims? That’s what should keep us awake at night.

In fact, China’s investment fund is growing by $200 billion annually. That’s enough to buy a U.S. firm the size of Wal-Mart each and every year.

Recent Chinese interest in Seagate, the U.S. hard-drive maker, seemed innocent enough. Until we learned that Seagate controls proprietary encryption software that the Pentagon desperately wants to keep out of Beijing’s hands.

Congress needs to require sovereign investors to publish their investment strategies and disclose their holdings. And sovereign wealth funds should not be allowed to buy entire U.S. companies.

With all the money now in Chinese hands, we are just one deal away from a new controversy that will make the xenophobia around the Dubai Ports dust-up look tame. How does Wal-Mart becoming the Great Wall Mart sound to you?

Ryssdal: Bruce Stokes is a columnist for The National Journal.

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