Investment secures wealth for security

Wealth security is an important component of state security. In China, the wealth of the State has increased faster than that of residents since the 1990s thanks to tax, financial and State-owned enterprise reforms. The fiscal revenue of the Chinese government was 8.31 trillion yuan ($1.32 trillion) last year, and foreign exchange reserves touched $3 trillion at the end the first quarter of 2011. Besides, the combined total assets of banking and financial agencies at home and abroad were more than 100 trillion yuan, and the total assets of 122 State-owned enterprises reached 24.3 trillion yuan by the first quarter of this year.

The huge state wealth, however, is a double-edged sword. If it is not managed properly, the public will regard it as an exploitation of their labors, which could threaten social stability. In reality, though, a considerable part of the wealth is not accumulated assets, but potential debt for the future, including dominant liabilities such as foreign exchange reserves, invisible liabilities such as pensions paid by the State to retired employees, as well as overdue liabilities for rural people and infrastructure construction in western China accompanied by price rises.

Experience shows that investment in the global market is an important way to guarantee state wealth security. The value of wealth is comparative, especially today when token money and virtual economy are becoming stronger.

A large part of state wealth forms through accumulation in or in reference to the world investment market. The value of commodities and services embodied in the currency's value is increasingly becoming a "recognized" value, formed in the games played between investors and speculators in global financial and capital markets. Thus, entering the world investment market can help state wealth achieve breakthroughs both in the real and virtual economies.

The global investment market helps realize state wealth. By taking part in the global investment market, State-owned enterprises can build up their learning curve in system design to manage and accumulate capital. Moreover, international investments also help give full play to economic factors. Accumulated wealth needs to be preserved in the world market, and for its development the domestic economy needs technologies and resources from abroad through investments in the global market.

The risks inherent in the global investment market, however, should never be overlooked or ignored. Chinese enterprises are relative newcomers to the world arena, even though they have experienced the complexity and dangers of the market, and one careless move could force them to forfeit the entire game.

The Chinese players may be big but they are still newcomers, and they have to be cautious about several factors in the competitive minefield developed and dominated by the West. Admittedly, the body of trade rules of some time-honored trading markets could help sharpen the resource distribution efficiency of Chinese enterprises. But they have to remember that the ups and downs in the markets for hundreds of years are also the result of many political compromises.

Chinese investors sometimes are passive when it comes to conflicts, but even a simple investment action could be in conflict with many existing interest groups. The Chinese players, therefore, should not think only about their gains and losses from the commercial angle. They have to consider many other factors in political, diplomatic and civil areas before investing to minimize the chances of conflicts.

Some intermediary organs, which play indispensable roles in the international market, deliberately devaluate the assets of Chinese concepts. And when it involves the dealings concerning their own countries' national security, these elements try and even succeed in getting confidential information from Chinese investors while keeping their sensitive national information secret.

Some organizations and individuals of developed countries even try to change the rules of the game while dealing with China because of their ideological prejudice. This is not only unethical, but also dangerous, because the greater the protectionism, the more uncertain future investments would become.

Chinese enterprises should catch up with the developments in the world investment market if they want to rear talents, reform the system and raise the expertise level. And Chinese investors should do their homework to know the ins and outs of capital receivers before making final decisions by establishing wide contacts with foreign governments and civil organizations.

The Chinese government, on its part, should take steps to develop Chinese intermediary organs and then encourage them to participate in devising the rules of game to build a better investment environment. These tasks cannot be accomplished in one sweep, though.

Investment in the international market is a complicated affair covering different subjects and demanding a professional approach, which entails coordination and participation of different departments. National security is a big project involving many areas that need expertise and efficiency in many fields, including economics, finance, investment, politics, diplomacy, culture, science, ecology and military. Inter-departmental supervision and coordination mechanism, too, are needed to ensure investment as well as national security.

The author is general manager of China Investment Corporation.

(China Daily 08/27/2011 page5)