China announced in March 2007 that it would create a sovereign wealth fund (SWF) to invest its accumulated foreign exchange reserves more profitably. In May 2007, China Jianyin Investment Company, a government agency that was designated to manage any asset purchases until the SWF was set up, bought a nearly 10% non-voting stake in Blackstone Group, a U.S. private equity firm for $3 billion. After a few delays, China's new sovereign wealth fund—the China Investment Corporation (CIC)—officially started operations on September 29, 2007. The CIC has proven to be of interest to Congress for several reasons. First, some observers are concerned that its investment activities might have adverse effects on certain financial markets and possibly the U.S. economy. Second, its creation signals China's intention to diversify its foreign exchange holdings away from U.S. government securities into other forms of investment. Third, specific proposed investments by the CIC may raise national security concerns. Fourth, some see the possibility that China could use the CIC as a mechanism to pursue geopolitical objectives. With an initial capital fund of $200 billion, the CIC was a significant new addition to the existing pool of SWFs (see Table 1 ). The CIC augmented the $2 - $3 trillion under management by SWFs worldwide. In addition, the SWF provides China with another avenue by which it can invest its growing foreign exchange reserves, which totaled $1.9 trillion as of December 2008. Also, the conversion of the foreign exchange reserves into capital for the CIC may help "sterilize" some of the excess financial liquidity in China that is reportedly contributing to China's recent inflationary pressures. However, China's decision to create the CIC reawakened some concerns about the impact of SWFs on global financial markets and engendered new misgivings about China's involvement in international equity markets. David R. Francis, columnist for the Christian Science Monitor , started his November 26, 2007 article, "Will Sovereign Wealth Funds Rule the World?," with the words, "Sovereign wealth funds are huge, scarily big." During a November 30, 2007 interview on National Public Radio's Morning Edition , Brad Setser of the Council on Foreign Relations stated, "The rise of sovereign wealth funds represents a shift in power from the U.S. to a group of countries that aren't transparent, aren't democracies, and aren't necessarily U.S. allies." In June 2007, Clay Lowery, the U.S. Treasury Department's acting undersecretary for international affairs, indicated in an interview that the rise in government-owned investment funds could cause major changes in global markets and bring about "financial protectionism." There are also concerns about how China (and other nations) will invest the capital of their SWFs. Before the creation of the CIC, China had invested much of its foreign exchange reserves in U.S. government debt, such a U.S. Treasury bills (T-bills), that were relatively risk-free, but offered relatively low rates of return on the investment. Kenneth Rogoff, former chief economist for the International Monetary Fund (IMF), indicated in a recent interview, "Countries like China just don't need to hold any more T-bills. There's just no point." For the first half of 2008, most analysts expected the CIC to invest in overseas equities and/or acquisitions in order to obtain higher rates of return on their investments. One financial expert's analysis of China's foreign exchange reserve holdings from 2000 to 2007 shows a slight shift away from U.S. dollar denominated assets. However, as the effects of the U.S. financial crisis spread across the U.S. economy and then around the world, the CIC's interest in overseas investments seemingly waned. With its current capital stock, the CIC has the theoretical ability to purchase controlling interests in or acquire major corporations, raising potential national security concerns. According to financial journalist James Surowiecki, "Were China so inclined, it could buy Ford, G.M., Volkswagen, and Honda, and still have a little money left over for ice cream." Surowiecki's observation was echoed by well-known investor Warren Buffett, who added that the annual U.S. trade deficit of approximately $700 billion means the United States has to "give away a little part of the country" every year. Buffet continued by auguring that if these trade deficits continue the United States could wind up as a "sharecropper economy," in which U.S. citizens largely work for foreign-owned firms. In the opinion of former Securities and Exchange Commission Chairman Christopher Cox, "the fundamental question presented by state-owned public companies and sovereign wealth funds does not so much concern the advisability of foreign ownership, but rather of government ownership." However, others are less apprehensive about the potential impact of SWFs on the global economy. Rogoff thinks SWFs will do "more good than bad." Surowiecki maintains that "some of the worries about the dangers posed by sovereign wealth funds are overstated," and that the SWFs "will act much like other investors, and focus primarily on the bottom line." Preston Keat of the global risk consulting firm Eurasia Group echoes Surowiecki's assessment, pointing out, "It's a context of mutual dependence. Blowing somebody else up does you at least as much financial damage." The investment activities of several SWFs—including the CIC—following the outbreak of the subprime-mortgage crisis in August 2007 lent support the views of Rogoff, Surowiecki and Keat. Some struggling financial firms received much needed injections of capital from SWFs. On December 19, 2007, CIC invested $5 billion in Morgan Stanley not long after the financial firm announced it was writing off $9.4 billion of loss-making mortgage investments. On January 15, 2008, SWFs from Abu Dhabi, Kuwait, Singapore, and South Korea provided a $21 billion infusion of capital to Citigroup and Merrill Lynch. During a period of global market uncertainty, SWFs appeared to be providing a source of stability. However, as the ripple effects of the financial crisis spread during the summer of 2008, the CIC and other SWFs seemed reluctant to take on additional ailing financial houses, indicating a possible limit to the willingness of SWFs to play the roles of financial rescuers and suppliers of market stability. While news accounts in June 2008 reported that China's sovereign wealth fund was preparing to go on a "global spending spree," by December 2008, CIC was stating it was in "no hurry to invest overseas." At the end of 2008, a senior CIC official offered his view of China's role in solving the global financial crisis, "China can't save the world. It can only save itself." The China Investment Corporation, Ltd. (CIC) is a semi-independent, quasi-governmental investment firm established by the Chinese government to invest a portion of the nation's foreign exchange reserves. The CIC reports directly to China's State Council, conferring it with the equivalent standing of a ministry, and the State Council's leader, Premier Wen Jiabao. According to one source, the CIC will have three major departments for its investment functions—1. Central Huijin Investment Company (CHIC), which will provide capital to domestic financial firms; 2. China Jianyin Investments, which will manage domestic assets and the disposal of nonperforming loans; and 3. A new department to manage overseas investments. The investment activities of the CIC are nominally directed by an 11-member board of directors, which reports directly to China's State Council. A separate seven-person Executive Committee, however, is generally considered to be in charge of the day-to-day operation of the SWF (see Figure 1 ). The CIC also reports to a semi-independent Board of Supervisors, which monitors the ethical conduct of the members of the Board of Directors and senior executives, as well as oversees its accounting and financial activities. The chairman of the CIC's board is Lou Jiwei, China's former deputy finance minister and former State Council deputy secretary general. Chairman Lou also serves as CIC's Chief Executive Officer (CEO) and chairman of the CHIC. The CIC's Chief Investment Officer (CIO) and president is Gao Xiqing, previously vice chairman of China's national pension fund, the National Council for the Social Security Fund. Other people serving on the CIC's board of directors include: Zhang Hongli, the CIC's Chief Operating Officer (COO) and past vice minister of finance; Fu Ziying, vice minister at the Ministry of Commerce (MOFCOM); Hu Xiaolian, deputy governor of the People's Bank of China (PBOC) and Administrator of SAFE; Li Yong, vice minister of finance; Liu Shiyu, vice governor of the People's Bank of China; Wang Chunzheng, ex-vice chairman of the National Development and Reform Commission (NDRC); Liu Zhongli, currently chair of the Chinese Institute of Certified Public Accountants; Zhang Xiaoqiang, vice chairman of NDRC; and Yu Erniu, the CIC's human resource director. Three of the members of the board of directors also serve on CIC's Executive Committee – Gao Xiqing, Lou Jiwei, and Zhang Hongli.