China is the only country in the world with two sovereign investment vehicles dedicated to managing excess foreign reserves for return, not just safety and liquidity. As the investment profile and behaviour of both funds align with the aims of the government’s economic agenda, it is tempting to view China’s two sovereign funds as forming part of a deliberate, coordinated strategy to further state policy. However, analysis of the origin of China’s multi-fund sovereign investment regime shows that this approach is primarily a product of intense bureaucratic rivalry within the Chinese public service, rather than a considered strategy of the sponsoring government. This historical account of China’s exceptionalism in sovereign investment suggests that there is no inherent reason why China’s sovereign investors should be outliers in terms of institutional design and governance. Yet, regional and international comparison reveals precisely that: relative to peer funds such as the Hong Kong Monetary Authority (HKMA) and Korean Investment Corporation (KIC), China’s investment vehicles lack robust mechanisms to achieve effective arms-length governance from their state sponsor. A series of reforms to the Chinese funds to ensure greater clarity of mission and alignment of purpose with internal decision-making would encourage Chinese exceptionalism in sovereign investment management becomes exemplary rather than anomalous.
China’s Sovereign Investment Funds in International Perspective: The Exceptionalism of CIC and SAFE