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March 20, 2007

China makes the world's largest investment fund

China has jumped ahead with three sweeping reforms to solidify its growth, bolster its financial markets, and more rapidly transform itself into a 21st century market economy. China has just created what could soon be the largest investment fund in history. Economists expect the Chinese government to allocate $200 billion to $400 billion to the new fund. China’s Finance Minister said Beijing is following the lead of Singapore’s Temasek Holdings, which has poured billions into Singapore Airlines and Singapore Telecom ... has invested heavily in banks, shipping and real estate ... and has pumped billions more into Asian economic giants like China, India and South Korea. Temasek Holdings is a $90 billion fund that has averaged 18% returns for 32 years.

Currently Temasek is 75% invested in Singapore but indicates that it will change to 33%. Another one-third will be in developed markets and the final third is planned for investment in developing economies. China could follow this approach and also use the fund to wield political influence in developed and developing economies.

Chinese National Legislature passes new property law which provides legal protection for personal wealth. This will bring a surge in the power of the merchant middle class, entrepreneurs and even farmers.

China will now allow trading in stock index futures and options.

If China invests in its own companies then this is like a nationwide
share buyback. They can also buy significant positions in strategic industries and invest in technologies for the future

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