Not all countries on the receiving end of these flows are receptive to the idea. The Thai authorities reacted badly to Temasek of Singapore’s purchase of a telecommunications stake in their country. Dubai Ports World had to abandon its attempt to buy ... US ports after it prompted a national security debate in the US Congress. The bid by China’s CNOOC for Unocal was also blocked in the US. There is no reason to expect this hostility to change with the 2008 US presidential elections.

One controversial area is the use of state funds to buy strategic energy assets. The clearest example is China’s courting of commodity producers, especially in Africa. There has been a backlash to this in some African countries, but their concerns may not last long given the need to attract foreign direct investment. How will the market and global trading companies cope with deals between governments on the buying and selling of commodities, or even with official funds buying important stakes in the mining companies themselves?

Equally controversial could be specific investment stakes in companies. In the US the fear is of foreign governments acquiring strategic stakes in vital industries. It is easy to see the US blocking future deals... All a US politician needs to ask is: should China be able to secure intellectual property rights overseas, when it cannot guarantee to safeguard such rights for foreign firms in its market? If blocked in the US, one response for state funds may be to opt for more complex, hidden transactions. Equally likely, the money may flow to more open markets...

While the fear is a protectionist response, the west should use the growth of state capitalism to force positive changes in the investing countries’ home markets. ... If the west accepts that Chinese firms can buy freely overseas, this should lead to pressure for China to open its domestic markets further. Similar pressure should be applied to other countries with large state funds that invest overseas.

There will be an impact on market prices. Asian reserves are now $3,300bn, while state-run funds in the Middle East may be $2,000bn. Such funds would not be the main driver of global equity markets, but they could have an impact on US yields. The capitalisation of the three main US equity markets is $22,200bn, while that of US Treasury debt is $4,600bn. A bigger issue arises if these funds start to invest now, at a nascent stage, in the growing equity and debt markets ... across Asia, Latin America and Africa. The impact of state funds could be huge in these growing regional markets that are smaller and less liquid. ...

At a time of uncertainty for the multi­lateral trading system, this issue of state capitalism is an area where the World Trade Organisation should see whether some ground rules are possible. If not, as globalisation takes hold the three most common words we may read may no longer be “Made in China” but “Owned by China”.