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The China Investment Corporation: Power, Wealth or Something Else?
Abstract
In 2007, China created the China Investment Corporation (CIC), a sovereign wealth fund (SWF). There is much anxiety about how Beijing will deploy this US$500 billion fund. Specifically, there are concerns that Beijing may use the CIC to sanction others, gain control of other countries’ key assets, or challenge the international order. This analysis demonstrates that China is not wielding its SWF aggressively as an instrument of economic statecraft. Instead, Beijing primarily leverages it in order to advance its domestic objectives. However, China does use the CIC to enhance its natural resource security and build international partnerships.
... Stosunkowo najlepiej zbadane pod kątem politologicznym są chińskie PFM (Blanchard, 2014;Kamiński, 2015b;Norris, 2016), choć nadal nie są one ujmowane w pracach opisujących chińską politykę zagraniczną (Chŏng, 2015;Heilmann, Schmidt, 2014;Lai, 2010;Rozman, 2013) lub traktujących o gospodarczej ekspansji Chin na świecie (Gwiazda, 2013). Świadomość ich instrumentalnego wykorzystywania przez rząd w Pekinie wcale nie jest więc powszechna wśród badaczy. ...
... Stosunkowo najlepiej zbadane są w tym zakresie fundusze chińskie (Blanchard, 2014;Kamiński, 2015b;Norris, 2016), choć wciąż w wielu aktualnie wydawanych pracach, opisujących założenia chińskiej polityki zagranicznej (Chŏng, 2015;Heilmann, Schmidt, 2014;Lai, 2010;Rozman, 2013) albo traktujących o gospodarczej ekspansji Chin na świecie (Gwiazda, 2013), fundusze majątkowe nie są ujmowane. ...
... Istotna rola, jaką odgrywają w polityce chińskiej instrumenty ekonomiczne, nie budzi więc wątpliwości (Wocheń, 2012), ale już w kwestii użycia przez władze w Pekinie PFM pierwsze wynik badań politologicznych pojawiły się dopiero niedawno. W żadnym razie też nie można ich uznać za kompleksowe, ponieważ albo dotyczyły jednego tylko funduszu (Blanchard, 2014), albo nie były poparte stosownymi danymi ilościowymi charakteryzującymi inwestycje PFM (Cieślik, 2014;Norris, 2016), albo dotyczyły jednego sektora lub regionu (Kamiński, 2015b;. ...
Pieniądze zawsze miały znaczenie w polityce zagranicznej, ale bodaj nigdy państwa nie miały ich w swoich rękach aż tyle. Ten wzrost wielkości kapitału kontrolowanego przez kraje sprawił, że coraz częściej sięgają one po instrumenty ekonomiczne do osiągania swoich celów na arenie międzynarodowej. Jednym z przejawów tego zjawiska jest szybki rozwój tzw. Państwowych funduszy majątkowych (PFM), czyli rządowych lub kontrolowanych przez rząd funduszy inwestycyjnych. Oficjalnie mają one efektywnie pomnażać zgromadzone w nich środki, ale… nie jest to cała prawda o ich działalności.
W oparciu o liczne przykłady autor niniejszej pracy pokazuje, jak PFM są wykorzystywane w polityce zagranicznej. Analizuje zarówno formy politycznego użycia funduszy, jak i warunki, które muszą być spełnione, żeby było to możliwe. Tym samym praca udowadnia, że zagrożenia związane z politycznym wykorzystywaniem kapitału państwowego są bardzo realne, co powinno się spotkać z adekwatną odpowiedzią członków społeczności międzynarodowej.
... The first is CIC, formally established in September 2007 to manage and diversify Chinese foreign exchange reserves beyond its traditional investments in dollar-denominated bonds. This is a flagship fund, officially acknowledged as an SWF, subordinate directly to the State Council and supervised by representatives from agencies such as the People's Bank of China (PBoC) and the Chinese Ministry of Finance (Martin, 2010;Blanchard, 2014). This fund provides annual reports, has official representative offices overseas, eleven-member boards of directors and even an ethical Code of Conduct. ...
... All of this makes CIC similar to a typical financial corporation. However, Gao Xiqing, former CIC president, bluntly stated that Chinese overseas investments aim to make profits but in the same time build influence (Blanchard, 2014). ...
... amid a media probe in 2008 (Anderlini, 2008). Some academics (Sun et al., 2014;Blanchard, 2014) refuse to recognize it as an SWF but the vast majority of researchers do, SIC appears in SWF databases (SWF Institute) and actively invest abroad in a similar manner to CIC. Both funds have a total of USD 1.3 trillion under management (SWF Institute), invest globally and compete with each other. ...
Chinese Sovereign Wealth Funds (SWFs) are new instruments of Chinese ‘Go Global’ strategy and the politics of maintaining raw materials and energy security. Europe has lured 60% of the total USD 27.3 billion invested by Chinese SWFs in the energy sector globally, which provokes the question as to how important SWF investments are in the political sense and what security concerns they bring. This paper is the first that presents a comprehensive picture of Chinese SWF investments in the European energy market and one of the very few papers about SWFs based on multiannual, comprehensive empirical data. The author argues that Chinese SWFs are different players on the energy market than private investors, could be potentially harmful for some European interests. By installing representatives on the company boards, China gains access to sensitive information that could be then transferred to Chinese competitors. Moreover, through its SWFs China could take control over energy companies or critical infrastructure and increase its political influence in European countries, making them more vulnerable to political pressure. Therefore, the European policy-makers should consider taking special steps to monitor and maybe limit Chinese SWFs expansion in the energy sector.
In 2012, David Cameron met the Dalai Lama. In retaliation for the meeting, China froze bilateral relations for 18 months. Subsequently, Cameron pledged to have no more meetings with the Dalai Lama and reiterated British recognition of Chinese sovereignty over Tibet. For some, China used economic punishment to extract the UK’s concession. For others, China used only diplomatic punishment. This article argues that both sides have underestimated the complexity of the case and need to integrate their insights for a better explanation. While China did not impose or threaten economic sanctions on the UK, its diplomatic sanctions put both political and economic pressure on the UK to concede. This article contributes to the studies of China–UK relations and China’s ‘economic coercion’.
From the time it began to reengage with global economic flows in the late 1970s, and especially after joining the WTO in 2001, China has steadily enmeshed itself in economic globalization (EG). It has become the world’s largest trading nation, one of the largest recipients of foreign direct investment (FDI), and a major player in the international currency regime. At first glance, it is hard to dispute that China has been anything but a beneficiary of EG given the growth, foreign exchange, jobs, technology, and tax revenues it has derived. Yet the reality is far more complex. This analysis delves into two aspects of China’s EG, inward FDI (IFDI) and outward FDI, to provide a better understanding of EG’s impacts. It provides background on China as an IFDI recipient; an overview of its experience as a sender of outward FDI (OFDI); investigates the benefits and gains of IFDI and OFDI for China; ponders China’s management of both; and reviews the negative externalities associated with China’s management of these two flows. This chapter shows the impact of EG has been positive for China, but also that China has experienced downsides and that its management of IFDI and COFDI have generated negative externalities.
This chapter serves as a primer on China’s Maritime Silk Road Initiative (MSRI) and the MSRI in Africa as well as the Middle East and North Africa (MENA), and the introduction to the edited volume. It begins with background on the history, features, and goals of China’s MSRI, noting various contemporary issues surrounding China’s ambitious scheme. It next gives an overview of Africa and MENA countries’ political and economic relations with China from 1949 to the present, partly to supply historical context, but primarily to highlight the diverse international and domestic political and economic forces that have shaped the attitudes and stances of African and MENA states toward China. Subsequently, it examines various aspects of the MSRI in Africa as well as Africa in MENA, detailing the objectives of both China and African and MENA MSRI participants as well as issues associated with the MSRI—e.g., neocolonialism—in these two important regions. It then summarizes some of the key points in the book’s chapters. The final section of the introduction highlights some of the diverse findings of the introduction and the book’s contributions, describes some of the book’s policy and theoretical implications, and suggests some avenues for future research.
This introduction consists of two key parts. The first provides background information on China’s Maritime Silk Road Initiative (MSRI) and delves into its goals and the obstacles China faces in realizing them. The second summarizes the book’s chapters and their findings. The first part demonstrates that the MSRI has numerous economic and political purposes at the national and subnational level, that China faces numerous daunting challenges, and that nonstate actors are an important part of the story. Summarizing the chapters, the introduction makes clear MSRI generated economic stimuli may not have positive political consequences, that observers of the MSRI need to pay attention to economic actors and issues and that we can be calm now about the MSRI’s potentially transformative effects. Finally, it demonstrates it is vital for China to bring India onboard to realize the MSRI’s full potential and that the MSRI will create many business and economic opportunities and challenges.
Examining three key symbols and three key practices at Expo 2010, this article argues that if we read these symbols and practices with sensitivity to their plural messages, the traditional binaries of hard and soft power become unworkable. Expo's symbols contain possible messages of the harmony, benevolence, and legitimacy of China's rise, but one can simultaneously read them to express violent harmonization, coercion, and illegitimacy. There are implications here for policymakers and researchers.
This paper studies the diversified investment of China's foreign exchange reserves from a new perspective of energy strategy. A model is designed to analyze investment strategy of Chinese sovereign wealth fund (SWFs) based on specific investment objective to maximize national welfare, regarding SWFs as one part of China's energy strategy. The theoretical analysis and simulation suggest that the strategy sovereign wealth fund can increase the national welfare. As an instrument to hedge the risk of national economy, strategy sovereign wealth fund prefers to invest in the strategic industry such as petrol and metal industries aboard. The more the strategy sovereign wealth fund hedges the risk, the more the whole national welfare increases.
The paper provides an explanation for a puzzling aspect of China's nascent sovereign wealth system, namely the ever-more obvious competition between China's officially designated sovereign wealth fund (SWF), the China Investment Corporation (CIC), and the foreign exchange reserve management agency, the State Administration of Foreign Exchange (SAFE). We outline an analytical framework which illuminates the various pathways by which state leaders seek to address a principal–agent problem common to all sovereign wealth funds. We suggest that state leaders select corporate governance regimes that mesh with what we call the state's ‘governance endowments’. We then substantiate the claim that China's particular governance endowments have led China's leaders to embrace a corporate governance model premised on competition among the state's sovereign wealth investors. We trace the intense bureaucratic conflicts that shaped the creation of CIC and then show how SAFE was subsequently drawn into competition with CIC in the area of high risk, high yield investment. Although China's SWF tournament emerged as a quite unintended consequence of bureaucratic politics, China's leadership has since tacitly endorsed this rivalry because it has supplied the government with valuable carrot and stick mechanisms with which to discipline fund managers.
Sanctions are said to fail because of the “rally‐round‐the‐flag effect”. This is the main reason why many advocate the use of positive incentives as a viable alternative. Not only do rewards provoke no defensive reaction, but they may elicit a rally in support of compliance – a “fifth‐column effect.” Yet, positive incentives are vulnerable to extortion – doing wrong in the hope of obtaining larger rewards. As a result, many conjecture that sanction threats and promises of reward are most efficient when used simultaneously. We put this conjecture to a test, staging a formal confrontation of the two forms of incentives. Our model pits a sanctioner and a target in a game allowing for the possibility of rally‐round‐the‐flag, fifth‐column, and extortion effects. The game yields unambiguous results: under no circumstances should a sanctioner prefer sanction threats to reward promises. This result holds despite the risk of extortion, a risk that proves to be less of a drawback than the rally round the flag.
Chinese outward foreign direct investment (COFDI) has captured the imagination of international business academics, journalists,
and analysts of Chinese foreign economic policy. While these students of COFDI have added greatly to our knowledge, they have
not adequately considered the politico-economy of COFDI. Specifically, they have not sufficiently evaluated the degree to
which COFDI is driven by political versus economic considerations, the extent to which political considerations influence
the overseas operations of Chinese multinational corporations (MNCs), or the political ramifications of COFDI for host countries,
international institutions, or China’s interactions with third parties. Reviewing the Western literature, this article provides
useful background information about COFDI, distills two general schools of thought about the politico-economy of COFDI—i.e.,
the “Beijing as Puppeteer” camp and the “Business of Business is Business” camp, and highlights a number of shortcomings with
each. As well, it suggests a number of ways in which the extant literature can move forward and makes clear the importance
of tracking the development of Chinese MNCs.
KeywordsChinese MNCs–Chinese Outward Foreign Direct Investment–Chinese FDI–Chinese Companies–Chinese Multinational Enterprises
This article critically reviews the literature on China and soft power. Among other themes, it tackles the conceptualization and operationalization of soft power, measurement of the effectiveness of Chinese soft power, and the analysis of variables that intervene between China's soft-power tools, realized images, and policy influence results.
This article begins by focusing on the distributive implications of factions, as conceptualized by past theorists. This article then operationalizes faction as a quantitative variable using some well-established assumptions about factions. A cross-section, time-series model is then used to test the impact of factions and the intensity of factional ties on the distribution of bank loans in reform era China. Two pairs of case studies are further used to illustrate the importance of factional ties in the allocation of scarce resources in the Chinese political system. The findings are unambiguous: factional ties with top leaders can bring substantial advantage in obtaining scarce resources in the system.
The rise of sovereign wealth funds (SWFs) as major investors in the global economy has raised worries that they serve the geopolitical ends of owner countries. However, given the paramount importance of surviving domestic political competitions, SWFs are likely also tools of domestic political survival. In examining the corporate governance and underlying political environment in which SWFs in Singapore and in China operate, this paper further examines the role of political unity in directing SWF behaviour in authoritarian regimes. The main finding is that a highly unified autocracy is more likely to direct SWFs to maximise long-term profit, while a fragmented one like China is more likely to treat its SWF as an arena for domestic political and bureaucratic infighting. SWFs operating in a fragmented regime are unlikely to make long-term profit and foreign policy objectives top priorities, and their behaviour can be highly unpredictable.
Concerns have been raised that Sovereign Wealth Funds (SWFs) might be used by governments to advance international political goals, raising red flags about their possible economic and national security consequences. These concerns are overstated. Warnings about national security threats related to foreign investment have been sounded repeatedly throughout history, but they have invariably been false alarms. Although there are novel attributes about SWFs in contemporary world politics, establishing their national security consequences is much more difficult than it might seem. And in those instances where theoretical connections between SWFs and “high politics” can be established, on closer inspection the SWFs appear to be intervening variables – manifestations of other pathologies – rather than the root cause of the postulated problem. The potential geopolitical problems caused by SWFs are the result of shifts in wealth in the international system, and not by the establishment or functioning of wealth funds.
China has established two of the world's newer large sovereign wealth funds (SWFs): the official China Investment Corporation (CIC), and the non-official and less transparent State Administration of Foreign Exchange (SAFE) Investment Company (SIC). Both provide alternative investment opportunities for China's exploding foreign exchange reserves, at US$2.4 trillion at the end of 2009, the largest in world history. This paper will address how China has accumulated its huge and growing foreign exchange reserves, and what roles these reserves, until 2007 managed only by the State Administration of Foreign Exchange (SAFE), have played in the establishment and development of China's two new SWFs. We will look specifically at why China's foreign exchange reserves have developed, and how the new SWFs are a part of broader efforts to provide investment alternatives for China's ballooning foreign exchange surpluses, particularly in light of the inflow of ‘hot’ foreign speculative funds. We will then point out some of the difficulties for China's financial officials of SWFs as they try to pursue multiple and sometimes competing goals, set by boards of directors representing different bureaucratic and economic interests, all within the context of a general lack of transparency and a rapidly growing economy. Finally, we will present our conclusions about the future roles of the two SWFs as well as of the policies being developed to decentralize foreign exchange reserve holdings while at the same time not slowing the growth of China's foreign trade surpluses, nor its foreign direct investments, nor its overall economic growth. We will also examine the effects of US-promoted Chinese currency appreciation on the future of China's foreign exchange reserves and its sovereign wealth funds.
Sovereign wealth funds (SWFs) are large, growing, and concentrated investment vehicles, with a current estimated value of U.S. $3 trillion. The combination of low transparency and government ownership has raised questions about political agendas, national security, and transfers of technology. In this article the authors report on the current status of SWFs in terms of investments, regulation, governance, and transparency of activities. They also review some recent studies on SWF investments and their impact on financial markets.
Territorial and maritime disputes are a visible part of the tapestry of Asia-Pacific Region (APR) international relations. They have provoked frictions between states, militarized conflict, and even war. Some believe interstate economic ties or economic inducements have the potential to mitigate and resolve the APR's territorial and maritime controversies. In this article, I analyze, in two primary ways, the potential for economics to calm or resolve the APR's territorial and maritime disputes. One is a theoretical evaluation, while the other is an empirical examination. As for the latter, this article analyzes two specific quarrels: the China-Japan controversy over the East China Sea and Diaoyu/Senkaku Islands and the Japanese-Soviet/Russian conflict over the Northern Territories. In both cases, the economic optimist case is proved wanting. This article shows that researchers must pay attention to political factors, domestic and international, to identify the factors that facilitate/hinder a settlement of territorial and maritime disputes.
Nation states are increasingly sharing sovereignty, both with other states and with supranational and non-governmental institutions. In large part, this is the result of a long period of economic and financial globalization, which has undercut territorial notions of sovereignty and varieties of capitalism. In trying to understand this phenomenon, we are drawn to sovereign wealth funds (SWF), as they offer a unique and powerful lens into the changing dynamics of contemporary capitalism, global economic integration and state sovereignty. Indeed, the SWF provides governments a tool for both engaging with new spatial forms as well as resisting them. While politicians may conceptualize the objective of such funds in the most practical terms, they serve an under-appreciated role in maintaining state sovereignty in a globalized (i.e. deterritorializing) world. In this paper, we build on emerging interdisciplinary scholarship concerning the rise of SWFs by broadening the interpretation of the utility of SWFs for the sponsoring government in relation to the practice and constitution of sovereignty. To this end, we offer an innovative, stylized typology of SWFs in relation to the state and its sovereignty. The objective is to better understand the potential long-term significance of SWFs and the factors that might underpin further development of new SWFs in different countries in the future. Moreover, we believe SWFs can be differentiated according to the role they play in sovereignty and what underlies their claims to legitimacy within their respective nation state. As such, by understanding the rise and purpose of SWFs, we hope to better understand the sovereign in SWFs.
Sovereign wealth funds (SWFs) have grown rapidly in recent years both in value and in number. Despite a great deal of popular debate, very little scholarly attention has centered on the ‘strategic use’ of SWFs by states, that is, as tools to promote national development. Using a ‘network mapping’ approach, I investigate two case studies involving extensive strategic SWF investment: Qatar, Abu Dhabi, and Dubai’s use of SWFs to promote the development of their aerospace sectors; and the deployment of the China Investment Corporation as an instrument of Chinese raw materials and energy policy. Strategically oriented SWF investment can be seen as a state-adaptive strategy under contemporary conditions of globalization and financialization. The viability of such a strategy, however, hinges on the manner in which it feeds into the strategies of firms and states at the receiving end of investment.
Purpose
The purpose of this paper is to provide a detailed overview of the China Investment Corporation (CIC) and its structure, investment activities and possible future investments.
Design/methodology/approach
This paper uses a case study approach and builds up a picture of sovereign wealth globally and then focuses on the CIC and issues surrounding the fund.
Findings
The key implications from the research are that Asian sovereign wealth is going to be increasingly important in global investment. The CICs investment strategy is evolving and becoming evermore sophisticated. As the fund grows this will result in increased demand for local financial services and expertise and so where representative offices are located will impact on those financial centers.
Research limitations/implications
Future research should expand the scope of the analysis to include other sovereign wealth funds and try to map out a comprehensive picture of sovereign wealth around the world.
Originality/value
This is one of the first papers to look at sovereign wealth and is believed to be the first paper to analyze Asian sovereign wealth and the CIC.
The establishment of sovereign wealth funds in large developing countries has generated hot debate among participants in the international financial market. When accumulated foreign exchange reserves surpass a sufficient and an appropriate level, the costs, risks and impacts of holding reserves on the macroeconomy of a country need to be considered. The Chinese Government established China Investment Corporation (CIC) in 2007 to diversify its investment of foreign reserves and to raise investment income. However, because of certain conflicts of interest and institution-design caveats, CIC possesses some internal weakness, including a vague orientation, mixed investment strategies and an inefficient bureaucratic style. Although the subprime crisis has softened certain regulations and lessened rejection by the USA of CIC potential investments, the increased volatility and uncertainty of the market means that CIC is facing some new challenges in terms of its investment decisions. Moreover, CIC is competing with other Chinese investment institutions for injections of funds from the Chinese Government. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Institute of World Economics and Politics, Chinese Academy of Social Sciences.
The sovereign wealth club acquired a new member with the official launch of the China Investment Corporation (CIC) on 29 September 2007. The arrival of CIC has further heated up debate regarding sovereign wealth funds (SWFs) and their potential implications for global financial markets. This is because, in carrying out its investments, CIC can tap into China's huge official foreign exchange reserves, which by April 2008 had surged to US200bn makes it the fifth largest SWF in the world today. This article seeks to analyze CIC's investment strategies, as well as their potential economic and political implications for global as well as US financial markets. Copyright (c) 2008 The Authors Journal compilation (c) 2008 Institute of World Economics and Politics, Chinese Academy of Social Sciences.