Sovereign funds of China are mechanisms through which the Chinese state acts as a market participant with the goals of supporting key domestic economic sectors, advancing strategic interests internationally, and diversifying its foreign exchange reserves.
[1]: 5 In turn, these policy financing institutions have played a major role in supporting the Belt and Road Initiative (BRI).
[2]: 8 As Liu summarizes, these funds "reduce the state's reliance on non-market measures, when engaging with the market.
[1]: 11 According to researcher Zongyuan Zoe Liu, "The CPC leadership responded to these shocks by reexamining the boundaries of state-market relations in China and reinterpreting the Party's commitment to reform and opening up.
"[1]: 11 This included reinterpreting China's approach to managing its foreign currency reserves and other state-owned assets more generally.
[1]: 67 Following the global financial crisis, a domestic political consensus developed for China to more aggressively invest its foreign exchange reserves.
[1]: 67 The lackluster performance of CIC created a political opening in 2013 for the State Administration of Foreign Exchange to expand the sovereign funds under its jurisdiction.
[1]: 15 Finance Minister Lou Jiwei, who had prior sovereign fund experience as the chair of CIC and its former CEO, was tasked with developing this proposal and served as lead author for the State Council's "Opinions on Reforming and Improving the State-Owned Assets Management System.
[1]: 4–5 China's first sovereign fund, Central Huijin's creation in 2003 was inspired by what Chinese policymakers learned during the 1997 Asian financial crisis.
[1]: 14 SAFE is the administrative unit which handles foreign exchange management for the People's Bank of China.