WASHINGTON: For years, the Bush administration has shrugged off concerns about the trillions of dollars that the United States owes to China, Japan and oil-producing countries in the Middle East, arguing that these debts give no undue leverage to foreign governments.
But at a time of global financial instability, the administration has started to worry.
U.S. concerns - like those of many European policy makers - focus on a growing but little understood trend of foreign governments converting their debt holdings into "sovereign investment funds" that are acquiring assets in the United States and elsewhere - and could influence the markets when they buy and sell.
Businesses owned by foreign governments can hire lobbyists to represent the businesses. Then governments can use their business holdings to buy influence in other governments.
Funds in the hands of sovereign governments are becoming huge.
Another concern is the sheer size and potential growth of these funds. Their estimated $2.5 trillion in assets exceeds the sum invested by the world's hedge funds. Also, Morgan Stanley, in a widely cited study, projects that these investment funds could grow to a staggering $17.5 trillion in 10 years.
Globalization isn't the triumph of the invisible hand.
As an example of what sovereign wealth funds can do, in May 2007 China bought 10% of Blackstone.
The Chinese government has agreed to pay $3bn (£1.5bn) for a 10% stake in US private equity company Blackstone.
It will give Blackstone a head start in Chinese takeover deals and allow China's government to tap into the global private equity boom.
China tried to buy oil company Unocal in 2005 but domestic opposition in the United States stopped the deal.
The role of China's government in their economy will limit how economically efficient China can become. But even if the Chinese government's interference eventually limits per capita GDP in China to half the US per capita GDP that still will translate into a total GDP more than twice the US. China's huge population mean that China doesn't have to become as efficient as the US in order to become economically much larger.
When US billionaires buy up US politicians there's a greater overlap in interests between the influence buyers and US regular folks than when Chinese billionaires, the Chinese government, and other foreign interests begin to do the same. The elites in the future won't even be your elites.
|Share |||By Randall Parker at 2007 August 21 11:06 PM Economics Globalization|