As for me, I’m less interested in the contents of the report as I am in the motives that underpin its commissioning. Why is the CRS writing a report (which is, in fact, their second) specifically on the exploits of the China Investment Corporation? Why is this SWF being singled out? As far as I can tell, none of the other major SWFs has received this kind of ‘special attention’ from CRS. What gives?
Martin seems to sum up the rationale for the report here:
“For Congress, the investment activities of the CIC and its subsidiary, Central Huijin, raise questions about U.S. policies on inward foreign direct investment (FDI) and the global competitiveness of U.S. financial institutions. Some question if the current controls on inward FDI via the Committee on Foreign Investment in the United States, SEC, and other agencies provide adequate protection of U.S. strategic assets and technology from investments by the CIC and other Chinese entities. Others are concerned that Central Huijin’s assistance to Chinese banks and financial institutions are part of a larger strategy to increase China’s influence in strategic markets. These commentators suggest that more should be done to protect the United States from China’s rising role in international capital markets.”
In other words, some in Congress are still freaked out by the rising economic power of China (they’re not alone, by the way). And, as a consequence, the CRS has been asked to keep Members abreast of the major economic tools at China’s disposal (i.e. the CIC) and how the US might respond to them. Indeed, at the end of the report Martin lists some possible regulatory changes that could counter the ‘potential economic risks’ associated with CIC investment in the US, such as restricting the size of investment (akin to Hong Kong and India), limiting the type of investments available to SWFs, or making changes to the US tax code.
Now, before we get too excited, it’s important to understand that a CRS report is not US policy, nor does it even reflect the views of Congress. CRS doesn’t make legislative or policy recommendations; it just provides information to members, committees, and leaders of the House and Senate. (For those outside the US who are unclear of what the CRS is and does, here’s a nice report detailing its roles and responsibilities.) Put simply, the CRS does research and analysis to assist Congress in the legislative process.
What this report does mean, however, is that some member, committee or leader has commissioned the CRS to keep a watchful eye on the CIC. But it’s hard to know whom and why. In my view, it means some individuals in Congress are still open to the idea of protectionist policies against the CIC. I definitely recall some intense concern directed towards the CIC during one of my research trips to the Hill (some of which I report here). But that all seemed to disappear some time around September 15, 2008…are we moving back to this?
In this vein, I’m reminded of something Jin Liqun recently said:
“…misgivings about SWFs are likely to rekindle as economies recover and the credit crunch becomes less of a problem. The mood would probably swing back. It may sound a bit weird, but it is true that SWFs’ relevance to global stability does not guarantee their status as a guest of honor in some of the economies where they have proved to be part of the solution, not part of the problem.”
Indeed, as the world economy (slowly) recovers, and the “currency war” heats up, we may need to consider protectionism against the CIC (and other SWFs) as a serious eventuality. Fingers crossed it doesn’t come to that.
This post originally appeared on the Oxford SWF Project website.