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Page added on September 29, 2007

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China to invest vast foreign reserves

The Chinese government launched a company Saturday to invest $200 billion from its vast foreign reserves, creating one of the world’s richest investment funds at a time of rising scrutiny of such state-run entities.

Financial analysts are watching to see where the new company invests and the impact on financial markets, especially demand for U.S. Treasury securities, in which Beijing holds a big share of its reserves.

Some officials and economists want the new fund to finance foreign expansion by Chinese companies or buy oil and other resources needed by the country’s booming economy.

The rapid growth of such sovereign wealth funds run by Asian and Middle Eastern governments has raised questions about their intentions and impact on financial markets.

A key question about its new strategy has been the possible impact on the Treasury market. Chinese purchases have helped to finance the U.S. budget deficit, and Beijing has given no indication of how much money might be diverted to other assets. But lower Chinese demand could force Washington pay higher interest to attract buyers.

BusinessWeek



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