CYIL vol. 11 (2020)

CYIL 11 (2020) SOVEREIGN WEALTH FUND acquiring foreign ports or shares of a foreign company, whereas a country’s official reserves deal ‘merely’ with balance of payments issues and monetary policy operations, such as currency interventions. Secondly, foreign exchange reserves are of a modest dimension when compared with SWFs. The SWF represents the ultimate stage of the surge in a country’s foreign exchange reserves. As soon as the foreign exchange reserves of a country rise to a high level, these reserves may be regarded as SWF. 15 A government typically establishes a SWF when it has a considerable budgetary surplus and a robust balance of payments. The SWF manages the high-volume foreign exchange surplus of the state. These are no longer what may be considered classical prudential monetary reserves. 16 Indeed, the central banks of China, Singapore, the Republic of Korea and Hong Kong have been managing a part of their vast foreign exchange assets as SWFs. 17 In brief, the SWF represents the state’s international investments, based upon its surplus foreign exchange assets. This surplus may come from natural resources (oil, gas, etc.) or from the country’s successful export performance. The SWF symbolizes the active and direct participation of the state in international investment; in the background, this participation is justified by the notion of state capitalism. 3. State capitalism Private property, competition and production geared for the demands of market exist in market capitalism. In a market economy, economic actors pursue maximum profit, 18 free wage labour exists and the laws of the market govern the economy. In state capitalism, these elements exist, too. Yet, in state capitalism, the state is conspicuously dominant – indeed, the state is dominant in the allocation of credit and investment and is also highly active in expenditure, purchasing and investment. True, every state is more or less present in the market but in state capitalism, a certain threshold of state intervention in the market has been passed. State capitalism is concerned with the acquisition of strategic stakes around the world by a government, 19 whereas market capitalism is based upon free markets, minimal government regulation and privatization. Arguably, state capitalism exists to a lesser or greater extent in every country and most of the time it is invisible, indirect and low-profile. The SWF, on the other hand, reverses this. The SWF represents visible, direct and high-profile state intervention into the free market. As such, SWFs can be considered the ultimate symptoms (and projections) of state capitalism. Capitalism is a process, and one that is continually in motion, 20 the ultimate aim of which is the accumulation and centralisation of capital. 21 Hence, the SWF is a method of accumulation and centralization of capital as put in motion directly by national governments.

15 ROZANOV, Andrew, Definitional Challenges of Dealing with Sovereign Wealth Funds , Asian Journal of International Law , I, 2011, p. 252.

16 Ibid., p. 253. 17 Ibid., p. 257.

18 HOWARD, M.C. & KING, J.E., State Capitalism in the Soviet Union , History of Economic Review , p. 120. 19 LYONS, Gerard, State capitalism : The rise of sovereign wealth funds , Law and Business Review of the Americas , 14(1), 2008, p. 5. 20 BINNS, Peter, State Capitalism , in Marxism and the Modern World, Education for Socialists, no. 1, March 1986, p. 3. 21 Ibid., pp. 4,5.

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