A Comparative Analysis On The Development Of Sovereign Wealth Funds Between Singapore And China

Sovereign wealth funds were created in the1950s. During the past few decades, not much attention has been paid on the sovereign wealth funds. With the continuous increase in the price of global resources and the aggravation of global economic imbalance for the past ten years, the Middle East energy exporters and the emerging markets in Asia has accumulated a large amount of foreign exchange reserves. Some of countries preserve the value of the national wealth by means of establishing sovereign wealth funds. Sovereign wealth funds not only have the rapid growth in the number and scale, but also show their increasing active performance in the international financial markets, which causes widespread concern.Late20th century, China’s export-oriented strategy made capital account and current account appeared surplus, the scale of China’s foreign exchange reserves kept growing. Foreign exchange reserves may have negative impact on China. In order to manage foreign exchange reserves effectively, China has built up its own sovereign wealth funds. With the development of sovereign wealth funds, the goals of establishment of sovereign wealth funds are no longer limited to the return on investment. China has created four sovereign wealth funds, which are SAFE Investment Company, National Social Security Fund, China-Africa Development Fund and China Investment Corporation. Especially after the establishment of the China Investment Corporation in2007, China’s sovereign wealth fund has experienced a rapid development. The establishment of China’s sovereign wealth funds make a great contribution to the long-term stability of China’s economy. However, China’s sovereign wealth funds started relatively late and are still in the exploratory stage, there are many places need to improve compared with the mature sovereign wealth funds in the international financial markets.Many countries have different management strategies for sovereign wealth funds that suit their national reality. Singapore set up sovereign wealth funds earlier and through years of active diversified portfolio of investments, it gained success in the management of Singapore’s foreign currency assets. Singapore’s two sovereign wealth funds-Temasek Holding and Government Investment Company, set up in1974and1981. Their operations are already quite mature, and now become a model for the world’s sovereign wealth funds. Singapore and China are both Asian countries and affected by the Confucian culture, they have similarities in the development of economic. They set up sovereign wealth funds by using the non-resource commodity export revenues. So it is necessary to analyze the development of sovereign wealth funds between Singapore and China, and identity the gaps between the two which has important significance for China’s sovereign wealth funds.First of all, the paper analyzes the growth of Singapore’s sovereign wealth funds. The main reason for the establishment of Singapore’s sovereign wealth fund is to manage state-owned companies and foreign exchange reserves. After decades of development, Singapore’s sovereign wealth funds formed the following characters:strong government background, higher market level, higher transparency, thorough risk management system, definite legal system, proper investment strategies and stable earnings.Second, this paper analyzes the development of China’s sovereign wealth funds. The purposes of China’s sovereign wealth funds are to control foreign exchange reserves, manage pension reserves and implement national development strategies. China’s sovereign wealth funds owned the following features:large scale funding, rapid development, complex government background, lower marketization levels, different initial sources of funds, lower transparency and the lack of overall plan.Next, the paper makes comparative analysis on the development of sovereign wealth funds between Singapore and China. At first, a study of the similarities between the two sovereign wealth funds is conducted. The two countries have something in common, such as the purposes, asset allocation strategy and financial investment philosophy. Then the differences between the two countries are explored. For instance, the marketization level, the fund positioning, transparency, risk management capacity and legal restrictions. At last,the thinking of the comparative analysis on the development of sovereign wealth funds between Singapore and China is explored.Finally, some suggestions are made for China’s sovereign wealth funds. For example, diversify asset allocation, clear the position of the funds, improve the level of marketization and transparency, strengthen risk management system and legal system, build up the structure of regulatory agencies and deal with "financial protectionism" effectively. The innovation of this paper can be seen as follows. Using the method of comparative analysis, the paper makes comparative analysis on the development of sovereign wealth funds between Singapore and China and draw a conclusion that China’s sovereign wealth funds have to improve. For instance, market level, the fund positioning, transparency, risk management capacity and legal restrictions. Based on the successful experience of Singapore’s sovereign wealth funds, the paper try to find the methods to improve China’s sovereign wealth fundsThe shortages of this paper also exist. Because of the specialty of the theme, it is not easy to find a suitable model. So, there is no empirical analysis in this paper, instead, data and charts are applied to solve problems and some recommendations may require further testing. Besides, due to the low transparency of sovereign wealth funds, the information disclosure is not enough, relevant data is inadequate and description is not insufficient.