Yale gained permission to invest in restricted Chinese stock this week, becoming the first foreign university to receive such a right from the Chinese government.
Just days before Chinese President Hu Jintao’s scheduled visit to Yale, his administration agreed to add the University to a list of 39 elite overseas institutions — each worth more than $10 billion — with access to a wide swath of the country’s domestic securities. Experts speculated that the University owed its success in large part to its relationship with China as well as a Chinese desire to open its economy to the West in careful steps.
The China Securities Regulatory Commission announced in a press release that it issued Yale a Qualified Foreign Institutional Investor license, enabling the University to tap new sectors of its booming economy. Overseas investors are generally only allowed to invest in designated securities that represent a small fraction of the nation’s assets.
Jud Koss, a spokesman for Commonfund, said Yale Chief Investment Officer David Swensen probably applied for the license to broaden the scope of the University’s $15.2 billion endowment and increase its stability. Commonfund is a firm that manages university endowments.
“Getting into emerging markets is a good thing as part of portfolio diversification,” Koss said. “He’s investing for your children’s children’s children. Emerging markets can achieve that.”
University officials could not be reached for comment Tuesday evening.
China’s decision on the eve of Hu’s visit likely resulted from its close ties to the University, said Beatrice Bartlett, a history professor emeritus and member of the East Asian Studies Council.
“Yale is being favored by China these days,” Bartlett said. “President Levin has built up a very good relationship with China through his numerous trips there.”
China has relaxed its tight restrictions on foreign investment recently, issuing licenses or assigning quotas to seven institutions over the last week. Yale has yet to be issued a quota detailing the extent of its certification. The Chinese government also told the Shanghai Securities News Tuesday that it may allow QFII institutions to tap the domestic future market, another stock class.
Bartlett said China is clearly opening itself to Western businesses, but he said the nation is still cautious due to historical imperialism.
“The Chinese naturally want to keep control,” she said. “They don’t want the days to return when foreign interests owned large, important interests in China.”
Concerns about globalization may explain why the Chinese are attracted to Yale and other institutions with long-term investment interests, economics professor Bjoern Bruegemann said. In the past, nations opening their economies to foreigners have fallen victim to volatile short-term investing, he said.
“It makes sense that they’re gradually opening up their markets because they might be concerned with speculation in their assets,” Brurgemann said. “Maybe they like more long-term investors with which to build a stable relationship.”
China has so far allowed foreigners to place $6.32 billion in its bonds and equities, the Shanghai Daily reported Tuesday.