A topic that goes surprisingly undiscussed is the quiet rise of the sovereign wealth fund (SWF).

Maybe it’s because the U.S. has stayed relatively disentangled from this controversial subject. Or, even more likely, it’s because few people understand what SWFs actually are. Given that China possesses the world’s fourth largest SWF, it’s something worth discussing.

In short, a SWF is an investment vehicle created by the state. These funds are usually put together from windfalls of cash, often arising from the sale of natural resources. Predictably, oil-rich countries with small bureaucracies, like the UAE and Kuwait control two of the world’s largest such funds. Other funds are set up by are trade-heavy city-states, like Singapore.

Sovereign wealth funds differ from state-owned investment companies, like the Chinese behemoth CITIC 中国中信集团公司, in that they only invest state money (instead of attracting other investors) and focus purely on managing those funds, avoiding middle-man roles and the need for large armies of financial analysts. Also, to make sure they are profitable, states usually hire SWF managers with proven investment portfolios and give them a great deal of autonomy in their decision making (as opposed to government cronies, who will make the fund just another instrument of state power).

This of course, sounds like a capitalist utopia: the state investing tax dollars and multiplying their value, to support further state programs. In Alaska, one of the few U.S. states with a SWF, residents not only have the lightest tax burden of any state in the U.S., but also get annual tax rebates from the state. What could be better, then, than the state raising its own cash to support its citizenry, while also stimulating the economy with investments at the same time?

China’s sovereign wealth fund, the China Investment Corporation or CIC (中国投资有限责任公司), in this way, seems to be a cutting-edge commitment to capitalism. Drawing on China’s ridiculously large foreign exchange reserves, the CIC has brokered such high profile investments as a $3.3 billion stake in the U.S.-based Blackstone Group and even owns one-tenth of Morgan Stanley.

For the most part, CIC’s investments have met a warm reception in the West, which is always happy to see China further embrace the market economy. Critics do exist, however, and worry that China will use it’s increasing large stakes in major U.S. firms towards political goals, such as obtain sensitive technology or gaining greater influence over the American economy.

These fears, however, not only miss the real issue, but get it backwards: What is disconcerting is not China’s new influence over CIC’s investments, but CIC’s investments’ new influence over China. If a country has billions of dollars invested in an enterprise, after all, and becomes increasing dependent on funds raised by that invest to operate government programs, they’ll be willing to bend rules and take special actions to ensure the enterprise not only survives, but thrives. More alarming, the independence these enterprises possess means that they can craft (though in a limited way) China’s foreign policy and domestic politics without having ANY direct responsibility to the Chinese people. There are also obvious conflicts of interest that arise in the pursuit of justice–imagine what might have happened with Enrongate if a U.S. SWF (or one of it’s investment funds) had invested a billion dollars in the Houston energy firm. If you think that the Communist Party and centralized democracy disempower the Chinese citizenry in general, then this development towards “corporatocracy” should be really frightening.

And yet this is a debate that generally goes unaddressed, at least in any meaningful way. So, Dongcha asks: as political power in China is increasing focused put into the hands of smaller, more self-interested groups of people, shouldn’t the media in China and the West be raising alarms?

Chairman Mack says: “Political power grows out of the barrel of a fund.”