White House urges caution on foreign investment curbs
Posted: 08 February 2008 0452 hrs

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WASHINGTON - The White House urged US lawmakers to be "very, very careful" about taking steps to curb investment in the US economy by government-run sovereign wealth funds amid worries about cash-flush China.

"We should be very, very careful to look at legislation that may affect investment coming into this country, and be very, very careful of the signals we send to foreign investors who are looking to place their money in this country," said spokesman Tony Fratto.

Sovereign wealth funds, including from oil-rich Middle East nations, have come under tight scrutiny in recent months as they use excess foreign exchange reserves to buy stakes in financial institutions, especially in credit-tight United States.

The China Investment Corporation Ltd. (CIC), launched as a sovereign wealth fund in September with 200 billion dollars capital, wants to boost investment returns on China's massive foreign reserves and manage reform of domestic financial institutions.

Several US lawmakers have expressed concern over China's financial maneuvers, saying it could pose a threat to American economic security.

Earlier, Fratto said the White House had "no particular" concern about China's fund but emphasized that any such institutions must be transparent and seek economic, rather than political gains from investments.

"I think, on balance, if they are transparent and they are free from political decision-making, they can contribute to overall growth in the global economy by investing in places that need capital," he said.

"But you do want to be careful about the level of transparency and whether the decision-making is a business decision, an investment decision, or a political decision," he said. "We'll keep an eye on it."

The International Monetary Fund (IMF) and US Securities and Exchange Commission are looking at the issue of sovereign investment funds, he said.

Asked later whether that signalled White House support for US legislation enforcing transparency, Fratto replied: "It should not have been interpreted that way, and I hope it wasn't."

- AFP /ls