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Weak Dollar Fuels China's Buying Spree Of U.S. Firms
Much of the recent overseas investment in the United States has been driven by sovereign wealth funds backed by foreign states. While these funds comprise only about 1.5 percent of the $165 trillion of global traded securities, they are growing quickly.
The funds -- at least a dozen of which were created since 2000 -- now control about $2.5 trillion. Morgan Stanley's Stephen Jen estimates that their worth will jump to $12 trillion by 2015.
For much of their half-century history, sovereign wealth funds have been seen as ideal investors by many U.S. firms. They have deep pockets and a long-range investment horizon, and they have shown little interest in interfering in the operations of the firms they invest in.
"The vast majority of sovereign wealth funds are long-term investors that tend to take very small stakes in companies without seeking to control or influence companies," said David M. Marchick, head of global regulatory affairs for Carlyle Group, a private-equity firm in the District. "They are just along for the ride."
But as recently as a few years ago, when credit flowed more freely, some members of Congress expressed alarm about acquisitions of strategically important entities like oil companies and ports by outside funds backed by foreign states.
These days, the general weakness in the U.S. economy has touched off a fresh wave of concern.
"Foreign investment, in general, strengthens our economy and creates jobs. But as investments by sovereign wealth funds in American companies increase and the specter of control and undue influence by government entities looms, we have to be careful," said Sen. Charles E. Schumer (D-N.Y.).
Sen. James Webb (D-Va.) said in a statement that "governments are motivated by a broader range of factors than commercial investors."
"While foreign governments may invest money in a country to make a profit, they may also do so in order to further their foreign policy ambitions, to acquire national security assets, or to purchase a stake in strategic industries," Webb said.
The fact that little is known about the funds' assets, liabilities or investment strategies only exacerbates worries.
"Most of them are not transparent and don't seem to be accountable to anybody, including their own people," said Edwin M. Truman, a senior fellow at the Peterson Institute for International Economics, who has testified before Congress about the funds. He said that a large group of sovereign wealth funds is engaged in discussions with the International Monetary Fund to develop a set of best practices for such funds.
Much of the concern about foreign investment has been centered on China, where the line between private industry and state enterprise is often blurry. A 2005 attempt by the China National Offshore Oil Corp. to buy California-based Unocal fell apart because of political opposition.