Washington-- Senator Evan Bayh (D-IN) said Congress should require passive investment by foreign government-operated sovereign wealth funds during testimony today before the U.S.-China Economic and Security Review Commission.

“Foreign governments operating sovereign wealth funds have in recent weeks been purchasing sizable stakes in U.S. companies—particularly in the financial services sector—and hardly a question has been asked. It is time that we start,” Bayh said.

The size of foreign government-operated sovereign wealth funds is growing, which has increased the opportunities for investment in the United States. Currently, there are seven sovereign wealth funds with more than $100 billion in assets, including the China Investment Corporation, which received $200 billion last year as seed money from that nation’s central bank for its investments.

“We want the investment; it’s good for our country,” Senator Bayh said. “There needs to be reasonable guidelines to make sure the potential for abuse does not take place. Sovereign nations have interests other than maximizing profits and can be expected to pursue them with every tool at their disposal, including their financial power.”

During his testimony before commissioners, Bayh cited Magnequench, a company formerly located in Indiana, as a “cautionary example” of the national security implications of certain types of investment by foreign governments. Magnequench once made 80 percent of the rare earth magnets used in the U.S. military’s laser-guided smart bombs. The company’s operations in Valparaiso, IN, were shut down and moved to China in 2003 after it was purchased by a consortium that included two firms owned in part by the Chinese government. As a result of the move, the United States is now dependent on China for access to this critical weapons component.

The U.S.-China Economic and Security Review Commission is responsible for monitoring and investigating the national security implications of the trade relationship between the two countries.

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