less well known is the new sovereign wealth fund created by china just two years ago, the china investment corporation. with $200 billion of assets and high profile investments in morgan stanley and other us firms, the new fund is making a strong debut. so how does china's sovereign wealth fund see the world economy and investment opportunities to come? our executive editor alan friedman sat down with the fund's president gao xiqing... >>friedman: of china's two trillion dollars reserves your sovereign wealth fund is a couple of hundred billion dollars. your highest profile investments have been the three billion dollar stake you invested in blackstone and then the five billion dollars stake in morgan stanley. in retrospect, do you regret that? >>xiqing: no, why should i? >>friedman: because of the nature of prices, they have come down... >>xiqing: prices go up and down, but we still believe these are very good institutions and through the past year and a half, through our dealing with them, we met a lot of them, they are very professional firmsand we cooperate very well. >>friedman: is this a time to

imbalance is that china's assets are mostly instruments, whereas external liabilities are mostly in equity forms. one way for diversification is to encourage the chinese corporations to invest abroad. and in that way, you know, on one hand, you'll reduce the holdings of china's asset. at the same time, you correct this debt equity imbalance in china and china's external assets. now, it's an area that they were invest, if we look at -- as i mentioned earlier, look at the broader context of diversification of china's assets, then clearly this should not be restrifted to areas. it's a broad range of areas that they would encourage areas to invest. also at the same time, to secure overseas markets. >> does that mean that if they buy viewer u.s. bonds, for example, less u.s. debt, they might actually deploy and invest here in the u.s. so it might be a wash in terms of their investments in the united states? >> i think by diversification away from u.s. treasuries, it is unlikely to be large in the near term. but in terms of incremental increase, the government encourages corporations to invest abroad. what was happening is that these corporations were needed to buy in the market

"wall street journal" says china investment corporation has chosen morgan stanley and blackstone to oversee hundreds of millions of dollars as it enters the u.s. hedge fund business. >>> shares of nbc universal parent ge are up 8% after goldman sachs upgraded the stock to buy from neutral. that's cnbc.com news now. i'm julia boorstin. >>> faster than a speeding bullet, this stock market is back above 9200, everybody. what's the matter? >> a single bound. >> welcome to "power lunch" the summer rally is back. the nasdaq back above 2000 for the first time since the dark days of last october. while the s&p 500 takes aim at 1,000 right now, sue. >> indeed, it does, bill. and coming up, the results of that huge treasury auction in the next hour. it could add more fuel to today's surge, but remember yesterday's didn't go so well. so it's going to be tense times in a short while. it may also tell us if the trillions of dollars in cash that we have been hearing on the sidelines is going to flood back into this market. >> >> and i'm michelle cabrusso-cabrera. what is the economic fallout for all of t

china is smaller cap company names. these are names that are not state-owned enterprises. many of the largest investments like fxi primarily own these large state-owned corporationseally for the shareholder, they're for the state governments. i think as somebody who believes in the entrepreneurial spirit, we look at small cap. a small cap etf hho done well this year up 50% versus fxi around 40%. a place to look at. >> you know i'm a believer, we know china has decoupled. small caps, i'm concerned about the corporates in china. the small cap level, it's as atrocious as it is anywhere in the world. how do you get around that? do you screen for people? how do we get more comfortable? >> the etf goes out and looks at market capitalization and does due diligence on the financial relationships of the company. a lot of the companies are shares trading in hong kong or maybe even in singapore as well as adrs. so there's due diligence behind some of the listings that happened. small cap investment in china, there are risks. volatility as you know, mr. ambassador, but over the long term, higher returns. >> thanks for coming on. railroads a great economic barometer. are ther

investment corporation, vermont. $1.2 million for the hydrogen fuel dispensing station, west virginia. $1.25 million for the long-term environmental and economic impacts of the development of a coal liquification sector in china -- west virginia. $1 million for the alaska climate center -- alaska. $5 million for the computing capability -- north dakota. $1 million for the performance assessment institute -- nevada. $1 million for the new school green building in new york. it goes on and on. there are tw 22 pages and my colleagues may be interested in the innovative names. you won't find an explanation in the report on the projects. so let me be clear on one point: i don't question the merits of the projects. there's no way to find out what merits are. many of them may be very worthy of federal funds. but if that's the case, one should wonder why they are national priorities in desperate need of scarce federal funding, why they haven't been authorized by congressional committee, why haven't we had a single hearing to talk about the desperate need for hydrogen fuel dispensing station in west virginia. if improve switch grass was so imperative at this time of crisis why was the funding not requested by the admin

we let the corporations to make a quick buck so they could give themselves big bonuses and in the end we were sending more jobs and more technology transfer and more capital investment to china, even though they had just slaughtered the democratic movement in tiananmen square. when we do something immoral, we come back and pay a price for it. and part of the reason we are in economic hardship today can be traced back to the immoral decision that i just mentioned. we permitted this china and author tarian totalitarian china to have an open free trade with the united states but it was only free trade one way and no liberalization going on. they shouldn't be given favored nation status and of course we look at it now, china has been given that. russia can't get anything. russia can't even get the jackson-vanik restrictions to be taken off. the tipping point came in 1991, which obviously caused a massive economic dislocation in russia as it moved out of its socialist economy. in 1991, the great reforms were happening in china. the democratic movement wasn't slaughtered like it was in tiananmen square but the russian people were suffering hardship. the russian collapsed and there