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China’s Sovereign Wealth Funds: A path to sustained development?

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  • Ákos Dani

    ()
    (Corvinus University of Budapest)

  • Ágnes Tõrös

    (Corvinus University of Budapest)

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    Abstract

    China’s current considerable economic growth is the combined result of several factors. Among these undervaluation of the currency and the sustenance of currency restrictions play an important role. Until now the Asian giant has accumulated approximately 2,700 billion U. S. dollars of foreign exchange reserves; even the world financial crisis did not abate the pace of expansion. We assume China has more reserves than necessary; tapping into this surplus is an excellent tool for Chinese development policy. In our examination we analyse, on the basis of relevant economic theories, what proportion of foreign exchange reserves the country can freely manage. In order to answer the question of how the country’s economic leadership wants to make use of these reserves, we analyse the practical policy of China’s latest sovereign wealth fund. According to our conclusions China aims to spend a significant portion of its reserves on strategic objectives. By buying modern technologies and raw materials the country can create a firm basis for stable, long-term economic development.

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    File URL: http://www.asz.hu/public-finance-quarterly-articles/2011/chinas-sovereign-wealth-funds-a-path-to-sustained-development-1/a-241-256-dani-toros.pdf
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    Bibliographic Info

    Article provided by State Audit Office of Hungary in its journal Public Finance Quarterly.

    Volume (Year): 56 (2011)
    Issue (Month): 2 ()
    Pages: 241-256

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    Handle: RePEc:pfq:journl:v:56:y:2011:i:2:p:241-256

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    Web page: http://www.asz.hu

    Related research

    Keywords: China; foreign exchange reserves; sovereign wealth fund;

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    1. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
    2. José Antonio Ocampo, 2007. "The Instability and Inequities of the Global Reserve System," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 36(4), pages 71-96, December.
    3. José Antonio Ocampo, 2007. "The Instability and Inequities of the Global Reserve System," Working Papers 59, United Nations, Department of Economics and Social Affairs.
    4. Romain Ranciere & Olivier Jeanne, 2006. "The Optimal Level of International Reserves for Emerging Market Countries: Formulas and Applications," IMF Working Papers 06/229, International Monetary Fund.
    5. Robert P. Flood & Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, International Monetary Fund.
    6. Olivier Jeanne, 2007. "International Reserves in Emerging Market Countries: Too Much of a Good Thing?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 1-80.
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