China’s Sovereign Wealth Funds: A path to sustained development?

Abstract

China’s current considerable economic growth is the combined result of several factors. Among these undervaluation of the currency and the sustenance of currency restrictions play an important role. Until now the Asian giant has accumulated approx-imately 2,700 billion U. S. dollars of foreign exchange reserves; even the world financial crisis did not abate the pace of expansion. We assume China has more reserves than necessary; tapping into this surplus is an excellent tool for Chinese development policy. In our examination we analyse, on the basis of relevant economic theories, what proportion of foreign exchange reserves the coun-try can freely manage. In order to answer the question of how the country’s economic leadership wants to make use of these reserves, we analyse the practical policy of China’s latest sovereign wealth fund. According to our conclusions China aims to spend a signif-icant portion of its reserves on strategic objectives. By buying modern technologies and raw materials the country can create a firm basis for stable, long-term economic development.