Protectionism is making a comeback. At least, that is the fear of many influential figures -- from senior officials at finance ministries to politicians and independent economists. These experts are, generally speaking, pointing their fingers from West to East, from the United States and Europe to China, Russia and the Persian Gulf, and they are being specific about the threat.

A new breed of global investment behemoths, the so-called "sovereign wealth" funds (SWFs) -- effectively state-controlled investment funds bankrolled by huge foreign-exchange surpluses or petrodollars -- want to buy up, among other things, Western companies. This could provoke protectionist calls from populist politicians.

Last week, for example, the German government was reported to be setting up an agency to examine acquisitions by these investment colossi, concerned that they could pose a threat to national security, particularly if they bought a major bank. A day later, the International Monetary Fund (IMF) joined calls for greater scrutiny of "black boxes" through which increasing financial flows are funnelled.

There are also questions about whether it is desirable for companies in the United Kingdom, say, to be owned by foreign governments whose commitment to capitalism and democracy may be shaky.

A week ago, a US Treasury official, Clay Lowery, stated baldly that there was a risk that "the size, investment policies, and/or operating methods of these funds fuel financial protectionism".

The UK is concerned too -- senior officials from the Treasury and the Foreign Office are meeting the head of China's fund to indicate that, while Britain is open for business, it would be nice to know a bit more about the fund's management and intentions.

As these fears were pouring out, China announced that its state-run foreign-exchange corporation would raise about $400-billion via a bond issue. Even before this capitalisation, China had been active on the international stage, buying a $6-billion stake in private equity group Blackstone earlier this year, making investments in Africa and unveiling offers for US companies such as oil giant Unocal.
full story from M&G here