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It's hard to get your head around a figure like $1.4-trillion. Dai Zhi Ping, who makes $500 a month selling the Beijing News from the back of his motorbike, looks perplexed when he is told that China has that much money in its foreign exchange piggy bank.

Pausing at his post outside the State Administration for Foreign Exchange, the faceless state agency that manages all that money, he says he doubts any of it will find its way into his pocket. It makes him feel good all the same.

“It proves that the country is getting richer and stronger,” he says. “The more we have, the better it is.”

Ah, but is it? As proud as Chinese may be of their new riches, the huge stash of foreign exchange earned by China's booming economy has become a $1.4-trillion (U.S.) headache, both for China and the world beyond. Beijing quite literally has more money than it knows what to do with.

To relieve itself of that unusual burden, China's leaders have embarked on what one money watcher has called the Great Leap Outward – an attempt to turn China from a passive recipient of other people's money to an active global investor. If it succeeds, it could change the face of global finance.

Other countries have grown used to the idea of China as global workshop, flooding markets with the output of its teeming factories. But what if – along with Barbie dolls, Christmas ornaments and DVD players – China started sending its capital to foreign shores? What if it became not just a manufacturing but a financial dynamo, with the power to shake international markets, buy up strategic Western firms or undermine Washington by dumping the U.S. dollar?

In a sense, it is already happening. This year has seen the first signs that China, the financial giant, is beginning to stir. In October, the Chinese brokerage house CITIC Securities Co. struck a deal to invest $1-billion in Bear Stearns Cos., Beijing's first major investment in an established Wall Street firm. Soon after, Industrial & Commercial Bank of China Ltd. said it was buying a 20-per-cent share in a big South African bank, Standard Bank, the biggest investment abroad by any Chinese institution. Earlier this year, China Development Bank agreed to put $3-billion into Britain's Barclays Bank.

Enter China Investment

More is coming. Beijing has just fathered a new investing entity, China Investment Corp., and given it $200-billion in pocket money as a birthday gift. What it will do with that money, a legacy from China's $1.4-trillion trust fund, is the subject of excited speculation in financial circles from Singapore to London.

Beijing's growing financial clout has even caused a stir on the U.S. presidential campaign trail. Democratic front-runner Senator Hillary Clinton has said that, with 44 per cent of U.S. debt held by foreigners, Washington needs new laws to prevent Americans from being “held hostage to economic decisions being made in Beijing, Shanghai, or Tokyo.”

While governments worry about what will happen when a nationalistic, non-democratic regime starts snapping up strategic assets abroad, Western investment firms see mouth-watering opportunities in the Great Leap Outward.

Much of that attention centres on the new-born China Investment and its $200-odd billion in spending money. Where will all that cash go? Who will profit from its spread? And how will it influence the movement of global markets?

Just the rumour that China Investment might make a stab at acquiring Australia's Rio Tinto boosted the mining company's stock last month, although the fund denied it was interested in the company, which is facing a takeover bid from mining giant BHP Billiton. The Japanese yen and the Tokyo stock market got a similar leg up when there were hints the fund might put some of its money into Japanese assets.

Beijing created China Investment to make better use of its foreign exchange reserves, which have more than doubled over the past 21/2 years as Chinese exports to the world have surged. Most of that money – up to 75 per cent by some estimates – is parked in U.S. government bonds and other securities. These are safe and easy to cash in if Beijing needed the money to defend its own currency from speculators, but they yield only modest returns.

China Investment's job is to take a portion of Beijing's foreign exchange pile and invest it a little more aggressively. The company is consciously mimicking the strategy of other governments that have built up an excess of foreign cash, usually by selling oil and other commodities. Dozens of countries from Norway to Abu Dhabi to Kazakhstan have set up so-called sovereign wealth funds to seek better returns from investing their hoards of cash. When China Investment came formally to life on Sept. 29, its $200-billion inheritance automatically made it one the biggest such funds in the world.

A bold beginning

The company made headlines even before it was born when its forerunner, Central Huijin Investment Co., agreed to pay $3-billion for a stake in Blackstone Group LP, the biggest publicly traded private equity fund in the United States. Normally, said investment analyst Andrew Milligan, a new investing company would start more conservatively, buying first into blue-chip assets and moving gradually up the risk curve. “The Chinese didn't. They immediately moved into private equity, which I found fascinating,” said Mr. Milligan, head of global strategy for Standard Life Investments in Edinburgh.

The Blackstone deal and the emergence of China Investment focused intense, almost hysterical, attention on the emergence of China as a new financial giant.

“China is buying oil China is buying Korean equities China is buying corn China is buying Ford China is buying Angola Expect to hear a lot of this kind of thing in the coming months,” Stephen Green, an economist with Standard Chartered Bank in Shanghai, said in a recent note to investors.

China's $1.4-trillion cash mountain casts such a shadow that when the vice-chairman of China's national parliament offhandedly remarked earlier this month that Beijing might want to move some of its money out of “weak” currencies like the U.S. dollar, the greenback went into the tailspin, sending the loonie briefly soaring.

These fears are almost certainly overblown. Since the Blackstone deal, China Investment has been painfully conservative. Over the past few weeks, its executives have made it clear they will spend most of their $200-billion not on foreign acquisitions but on helping Chinese banks. It will use one-third of its kitty on cash injections for Agricultural Bank of China and China Development Bank, both state-owned institutions. Another third will go to acquiring Central Huijin Investment, which manages the government's stakes in big Chinese banks.

China Investment has said privately it has no immediate interest in taking a big stake in any foreign company. That set it apart from more experienced funds such as Abu Dhabi Investment Authority, which announced last month it was taking a $7.5-billion stake in the troubled U.S. banking titan Citigroup. Even the Blackstone deal, in retrospect, was hedged with caution. China took a non-voting stake, with no right to have a director on the company board.

Just 10 weeks old, officially speaking, China Investment is an infant in the world of sovereign wealth, with only about 20 employees so far. It was late last month that it started recruiting in earnest, opening a website in English and Chinese seeking investment analysts, portfolio managers and researchers.

Its leading executives, though seasoned, well-educated money men, are far from being buccaneering capitalist raiders. Chief investment officer Gao Xiqing is a lawyer educated at Duke University in North Carolina who helped manage China's national pension fund. Chairman Lou Jiwei is a former deputy finance minister and still sits on China's State Council as deputy general secretary.

Mr. Lou said in a speech last week that “we are seeking reasonable long-term returns with acceptable risks.” In the same buttoned-down vein, another leading executive, Jesse Wang, said the fund will be a “passive investor.” Its mission, he said, “is purely investment-return driven.”

Politics behind the pressure

China's investment officials learned to avoid political controversy when a congressional outcry blocked the purchase of the U.S. oil company Unocal in 2005. The fuss in Canada over a proposed takeover of Toronto mining firm Noranda Inc. by China Minmetals Corp. in 2004 sent a similar signal.

All the same, the pressure on China is building. The Americans are already upset over the ever-growing Chinese trade surplus, a product, they believe, of Beijing's decision to keep its currency and wages artificially low. Now they see an added threat – that the money American consumers spend to buy Chinese goods could in effect be recycled by Beijing to snap up key U.S. assets.

Europe, too, is losing patience. The European Union expects China's trade surplus with the EU to grow by 30 per cent to $252-billion this year. To help correct the imbalance, Europe wants China to let its currency, the yuan, rise against the euro – a point French President Nicolas Sarkozy made when he visited Beijing last week.

The idea that state-owned investment funds run by authoritarian regimes might buy into private markets and influence their movements is disquieting to many governments. The Group of Seven industrialized countries was worried enough to order a study of the funds at a Washington meeting in October.

In fact, the $2-trillion to $3-trillion that sovereign wealth funds can marshal pales beside the roughly $53-trillion controlled by private institutional investors. In any case, most such funds are prudent long-term investors whose buy-and-hold strategy serves to stabilize markets in times of panic selling.

The idea that Beijing might fight back against U.S. trade pressure by slashing its stake in U.S. Treasury bonds and undermining the U.S. dollar seems especially far-fetched. Sometimes called the “nuclear option” in China's state-controlled press, that would reduce the value of Beijing's foreign exchange reserves by hundreds of billions of dollars – a classic case of cutting off your nose to spite your face.

It would also hurt the U.S. economy and cut demand for Chinese products. Even so, China's Great leap Outward is bound to change the global financial landscape over time.

Most analysts believe that the $200-billion that Beijing has allocated to China Investment is just the beginning. If its investments pay off, hundreds of billions more could come its way.

With piles of foreign exchange piling up in its monetary system, brought in by overseas investors and foreigners paying for China's booming exports, Beijing simply must spend some of it or see its economy drown in the excess liquidity.

It is already starting to happen. Annual inflation stood at 6.5 per cent in October, the highest in 10 years. The Shanghai composite index has risen fivefold in two years. Property in big cities is way up, too. Near Shanghai's renowned Bund waterfront district, new apartments are going for $17,000 a square metre. Chinese are even investing in exotic collectibles like vintage tea.

‘Go global'

Jim Walker, a Hong Kong economist and China watcher, said China's economy is like a pressure cooker “and the gas is turned up full burn.” Beijing needs an escape valve for its excess cash. Investing overseas is the logical release.

“This is a large economy with a very high savings rate,” said David Li, an economist at Beijing's Tsinghua University. “One way or another, our money will have to flow to your economies.”

Apart from setting up China Investment, Beijing is taking several steps to help it happen. To begin with, it is encouraging state-owned and private enterprises to invest in overseas companies. Ping An Insurance Co.'s announcement last week that it was buying a 4.2-per-cent stake in Dutch-Belgian financial services outfit Fortis NV is only the latest such foray by a Chinese company. It was the biggest overseas purchase so far by a Chinese insurer.

“China's leading companies, particularly its financial and resources giants, can be expected to make a growing volume of overseas investments in the years ahead,” Jing Ulrich, an analyst for JPMorgan in Hong Kong, said in her latest report on Chinese outward investment.

China's President, Hu Jintao, said in October that Beijing would “accelerate the growth of Chinese multinational corporations and brand names in the world market.”

China's government is also encouraging individual and institutional investors to look abroad. Central Bank Governor Zhou Xiaochuan has been giving speeches around China prodding individual investors to “go global,” as Beijing calls its outward-bound strategy. Under the Qualified Domestic Institutional Investor program, launched last year, Beijing is letting selected financial firms invest in overseas equities. This summer, for example, authorities raised the cap on overseas investments by insurance companies to 15 per cent of the company's assets, up from 5 per cent before.

Investors seem enthusiastic. One fund designed to invest in foreign markets attracted 100 billion yuan ($13.5-billion U.S.) in a day when it was offered this fall, a record for a Chinese investment fund.

Beijing also says it wants to let Chinese investors buy stocks in the Hong Kong market, a plan known as the “through-train” because it would let retail investors get their money over the mainland-Hong Kong border.

So far, these measures are tentative. Beijing recently delayed the through-train over fears of seeing a capital flight. But they signify Beijing's intent to let money flow outward, a serious step for a control-obsessed government that still has many Communist-style controls on the flow of cash and capital.

“We don't need to be pushed by the Americans and the Europeans. We will do this ourselves,” says economist Yu Yongding, director of Beijing's Institute of World Economics and Politics.

China's coming out as a global investor is just part of a big change in world money flows and the power relationships that follow. Not long ago, investment flowed from the rich world to the poor. Now, the flow is starting to reverse. Developing countries made an estimated $128-billion of investments in developed ones in the first three quarters of this year, up from $14-billion in all of 2003.

The shift promises to be particularly momentous in China, with its dynamic economy and its huge population of 1.3 billion. Once the hunting ground for foreign investors, China is starting to play the hunter. The jungle of international finance will never be quite the same.