BEIJING, Feb 25, 2008 (AFP) — The European Union wants a global code of conduct for sovereign wealth funds, its trade chief said Monday, just days after China had attacked scrutiny as harmful to the global economy.
EU Trade Commissioner Peter Mandelson made the call in Beijing as funds such as the 200-billion-dollar China Investment Corp. are rapidly raising their profile with a series of massive acquisitions in developed Western markets.
"We in Europe should welcome such investment from China and other wealth funds, and not reject it," Mandelson told AFP.
"But we need everyone to agree a code of conduct and principles governing the behaviour of these wealth funds, which provides for transparency and good governance."
Asian and Middle Eastern funds have recently been eager buyers of Western assets such as stakes in key financial institutions, which became cheaper after the firms incurred huge losses from the US subprime mortgage default crisis.
The crisis has ballooned into a global credit crunch, which some experts say the funds stopped from being even worse by injecting billions of dollars into ailing banking titans like Citigroup, Merrill Lynch and Morgan Stanley.
But there are growing US and European fears that the funds are too opaque and could potentially be used as political tools by their respective governments.
"This code should be a voluntary one and it should preferably be an international one, rather than simply a European one," said Mandelson.
The commissioner, who arrived in Beijing on Saturday and will leave early Tuesday, later told the British Broadcasting Corp. that he had met with Lou Jiwei, the chairman of the China Investment Corp., for 90 minutes.
Mandelson told the BBC that Lou said "there are long-term relationships and considerations which will govern China's investment decisions" as opposed to short-term moves "to pounce on economic fat rabbits in Europe and elsewhere."
"We don't want to close our markets to Chinese investment, but we have to be assured that it is commercially motivated," he added.
The International Monetary Fund, reflecting such concerns, is now preparing voluntary rules for the funds. But China has hit back that Americans and Europeans are making matters worse by being overly suspicious of them.
"The United States and Europe have stepped up scrutiny of sovereign wealth funds from the emerging economies, while trade frictions are rising," the Chinese central bank said in its quarterly report on Friday.
"This has a negative impact on the healthy development of the international economy and the orderly correction of global imbalances," it said.
Economists argued that China might have a point if the codes prepared in Europe and elsewhere were intended to be protectionist.
"It is a good thing if it is purely based on maintaining fair competition," said Shen Minggao, a Beijing-based economist with Citigroup.
"But it could slow down the pace of investment by sovereign wealth funds ... if it intends to restrict their access to the European market or to raise more demanding requirements."
The China Investment Corp. is just one of a number of sovereign wealth funds, which exist not just in the Middle East but in Europe too.
But China's fund has drawn particular attention after announcing high profile deals and amid speculation that it could get more money from the country's 1.53-trillion-dollar foreign exchange reserve, the world's largest.
The fund has announced plans to invest five billion dollars in Morgan Stanley for no more than 9.9 percent of the US bank's shares. It has also bought a three-billion-dollar stake in US private equity firm Blackstone Group.
Several US lawmakers have expressed concern about the activity of China's wealth fund, saying it could pose a threat to American economic security.
Copyright © 2009 AFP. All rights reserved. More »
