China says sovereign funds play stabilising role

ANNAPOLIS, Md., June 17 (Reuters) - Sovereign wealth funds can play a stabilizing role in the global economy and do not pose a threat to financial markets, Chinese Finance Minister Xie Xuren said on Tuesday.

Speaking on the first of two days of economic talks with the United States, Xie argued that government-owned wealth funds could act as a counterbalance to the short-term bets made by some investors.

"Sovereign wealth funds' investments are generally long-term, not speculative, so they are beneficial to the growth of investment and the economy," Xie told reporters on the sidelines of the U.S.-China "strategic economic dialogue" talks being held at the U.S. Naval Academy.

Xie noted that China's own sovereign fund, China Investment Corp, was set up under Chinese corporate law and abided by commercial principles of internal governance and transparency.

He added that calls for a global set of principles for investments by sovereign wealth funds, prompted by concerns in some countries, including the United States, over whether some investments could be political in nature, were reasonable, but that they needed to be fair.

"We think that developing rules on improving the investment and management of SWFs is important, but those rules should be created by all the countries involved," Xie said.

Xie added that Beijing was planning to ramp up its spending on social welfare, education and medical care and carry out reforms to its social security system so as to help promote more-balanced economic growth.

Economists say that the lack of a sound social welfare system dampens domestic consumption by prompting people to save more for a rainy day, meaning that the economy relies too heavily on exports and investment for growth.

The need for greater spending on social welfare so as to steer the economy more toward a reliance on consumption is one concern U.S. officials have raised with China in past talks. (Reporting by Jason Subler)