The Economic Influence of the Chinese Government’s Sovereign Wealth Fund

Written By Julian Freyre

A sovereign wealth fund (SWF) is a state-owned investment fund. Governments often use sovereign wealth funds to build public wealth, pay for government spending, stabilize markets, and invest in specific industries (Estevez, 2024). Some of the largest sovereign wealth funds belong to Norway, China, the United Arab Emirates, Saudi Arabia, Singapore, and Kuwait (Wang, 2018). Not only do governments use sovereign wealth funds for economic reasons, but they use them for political purposes as well, specifically for power projection and international relations. The Chinese government excellently demonstrates the power and utility of their sovereign wealth fund, which makes their Chinese Investment Corporation a useful case study. 

In September of 2007, the Chinese government established the Chinese Investment Corporation (CIC) with the purpose of maximizing return at acceptable risk tolerance and improving the corporate governance of state-owned financial institutions (IFSWF). As of 2022, the CIC manages US$1.24 trillion, which makes it the second largest sovereign wealth fund behind the Government Pension Fund of Norway (Slotta, 2024). The Chinese Communist Party (CCP) funds the CIC with their national reserves, and the fund grew to its current size through an accumulation of large swathes of dollars from international trade (Davis, 2024). Compared to less centralized countries, the CCP can move assets and start investment initiatives extremely quickly without nearly as much shareholder criticism as publicly owned private sector giants. This has enabled them to invest in global energy markets, aid in the highly controversial  urbanization of Africa, and start the Belt and Road initiative.

China’s investments in global energy markets are so large that it could fundamentally change international energy infrastructure. Many estimates make China’s energy portfolio to be at least hundreds of billions of dollars in foreign assets. Contrary to many Western countries, China’s centralized government has enabled them to make long-term investments in uranium supplies, hydrocarbons, and renewable energy (Cohen, 2023). This degree of energy investment aligns with the CCP’s goals of supporting a rapidly urbanizing nation and carrying out their 14th Five-Year Plan, which is essentially their macroeconomic cookbook (Cohen, 2023). A more specific part of this investment plan is the renewable energy spending that has been a driving force in China’s economic growth. Renewable energy investment grew 40% year-on-year to US$890 billion in 2023 (Myllyvirta, 2024). These energy investments make China an international force to be reckoned on the global stage, especially with the prevalence of climate change.

For the past two decades, the CCP has been providing African countries with a huge amount of financial support (Haas, 2024). Since 2000, China has given over US$170 billion to African countries for infrastructure, such as roads and railways. According to some estimates, China has 2.5 times more African investment than every western state combined (Haas, 2024). These investment projects have been carried through the previously mentioned Belt and Road Initiative. 

Kenya’s Standard Gauge Railway is a prime example of Chinese influence. China loaned US$5 billion to Kenya to finance the ongoing project. The railway connects Nairobi, the capital, to the port city of Mombasa and reduces the journey from a grueling ten hours to a manageable four (France-Presse, 2024). Another African project came in 2016 after the Chinese established a naval base in Djibouti. With the US$590 million port, the Chinese government carries out peacekeeping missions in the region, engages in trade, and executes counter-espionage (France-Presse, 2024). An important part of China’s African investments comes from the mines in countries such as Botswana, Zambia, Namibia, and Zimbabwe. The CCP has invested around US$7.8 billion in African mines and uses the resources for domestic clean and green energy projects (France-Presse, 2024). For example, the CCP acquired one of the largest copper mines in the world, from Botswana in a US$1.9 billion deal (France-Presse, 2024). All of these investments are part of the larger Belt and Road Initiative, a Chinese foreign investment project that seeks to project Chinese power throughout the developing world. 

Xi Jinping launched the Belt and Road Initiative (BRI) in 2013, and it was originally linked to physical infrastructure in Europe and the Middle East (McBride, 2023). However, it has dramatically expanded to other parts of the world such as Africa, Oceania, and Latin America in an attempt to further broadcast Chinese economic power and influence (McBride, 2023). BRI seeks to establish large swathes of infrastructure in every region that it operates in and make the Chinese Yuan, Yuan (¥), replace the USD as the dominant currency in the regions (McBride, 2023). So far, 147 countries, (around two thirds of the world population) have signed on to BRI projects. The largest of these is the China-Pakistan Economic Corridor which Beijing is estimated to have spent US$62 billion on (McBride, 2023). Through these projects, Chinese President Xi Jinping seeks to bring about his vision of a more assertive China (McBride, 2023). 

However, this massive project doesn’t come easily as there are many potential roadblocks. Many countries see BRI money as a poor option because of the lack of transparency from the CCP and the terms of loans themselves (McBride, 2023). Specifically since COVID-19 and the Russian invasion of Ukraine, many countries have struggled to repay their BRI loans (McBride, 2023). On top of that, many experts have criticized BRI for its impact on the ever-worsening climate change problem. Despite the emphasis on green-energy investments, nearly half of BRI spending is from nonrenewable energy sources (McBride, 2023). However, the BRI has become more successful and efficient over time, and the vision of a more powerful China remains strong. 

While several books could be written about Chinese foreign policy and their sovereign wealth fund, these examples highlight the general vision and tactics of the CCP. From domestic green-energy investment to pouring billions of dollars into Africa, China has made efficient use of their state owned investment funds and enacted a meticulously thought out economic plan to ensure the political and economic dominance of China. Will these investment patterns continue as they are to further Chinese influence around the globe or will their Western counterparts and disgruntled debtors upend their plan for a more assertive China?

References

China Investment Corporation. IFSWF. (n.d.). http://www.ifswf.org/member-profiles/china-investment-corporation

Cohen, A. (2023, June 22). China’s sovereign wealth fund in energy markets expansion. Forbes. http://www.forbes.com/sites/arielcohen/2023/06/13/chinas-sovereign-wealth-fund-in-energ y-markets-expansion/

Davis, B. (2024, July 10). How big is CCP Inc..?. Foreign Policy. https://foreignpolicy.com/2024/06/22/ccp-beijing-chinese-investment-sovereign-wealth-fu nds-book-review/

Estevez, E. (2024, June 20). Sovereign Wealth Fund (SWF): Definition, examples, and types. Investopedia. http://www.investopedia.com/terms/s/sovereign_wealth_fund.asp

France-Presse, A. (2024, September 1). 5 key chinese “Belt and road” projects underway in Africa. Voice of America. http://www.voanews.com/a/key-chinese-belt-and-road-projects-underway-in-africa/776750 7.html

Haas, A. R. N. (2024, November 15). China’s investments in Africa aren’t working as well as they should for cities: This needs to change. The Conversation. https://theconversation.com/chinas-investments-in-africa-arent-working-as-well-as-they-as -they-should-for-cities-this-needs-to-change-238046

McBride, J. (2023, February 2). China’s Massive Belt and road initiative. Council on Foreign Relations. http://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative  

Myllyvirta, L. (2024, February 15). Analysis: Clean energy was top driver of China’s economic growth in 2023. Carbon Brief. http://www.carbonbrief.org/analysis-clean-energy-was-top-driver-of-chinas-economic-gro wth-in-2023/

Slotta, D. (2024, July 16). China Investment Corporation: Total AUM 2022. Statista. http://www.statista.com/statistics/1349900/total-value-of-aum-of-the-cic/ 

Wang, J. (2018). Sovereign Wealth Fund rankings. Reuters. http://www.reuters.com/graphics/GULF-QATAR-QIA/010041PS3P9/