Sovereign Wealth Funds: Taiwan's Turn?

Posted by: Bruce Einhorn on March 7, 2008

Singapore, the Saudis and other Gulf states have gotten lots of attention lately for their sovereign wealth funds, vehicles that invest billions of the countries’forex reserves. The Chinese last year got into the sovereign wealth game, and people in Japan have been calling for Tokyo to set one up, too. Now it’s the turn of the Taiwanese. According to this story in AsianInvestor (a content-sharing partner of BusinessWeek, btw), Taiwan’s central bank is considering setting up a sovereign wealth fund that “could initially be financed using part of the central bank’s $277 billion in foreign exchange reserves and could possibly be modelled after Singapore’s Temasek or Government Investment Corporation.”

This should get interesting. One reason the Taiwanese are considering the sovereign wealth fund option, according to AsianInvestor, is their envy at the way China has accumulated an enormous amount of assets in such a short time. But China’s activity is not without its critics in the West, many of whom are at the way foreign governments are able to buy on the cheap big stakes in U.S. and European banks battered by the subprime meltdown. The funds typically say that they have no political agenda: See, for instance, this AP story picked up in BusinessWeek the other day about execs from the sovereign wealth funds of Singapore and Norway testifying before Congress. “Simon Israel, executive director of Singapore’s Temasek Holdings Ltd., said the fund does not discuss individual acquisitions with the government and invests ‘on a purely commercial basis.’ “

No doubt the Taiwanese, if they set up a fund, would say the same thing. But come on. Taiwan, desperate for diplomatic allies, has been engaged in a bidding war against China for decades in an attempt to win the loyalty of tiny countries in the developing world. Given Taiwan’s history of using its deep pockets to serve its political agenda, good luck trying to convince skeptics that a new Taiwanese sovereign wealth fund would operate on a purely commercial basis.

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