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1. China’s FDI in Europe and Europe’s Policy Response

Author:
Pyoung Seob Yang, Cheol-Won Lee, Suyeob Na, Taehyn Oh, Young Sun Kim, Hyung Jun Yoon, and Yoo-Duk Ga
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
China’s investment in the European Union (EU) increased significantly during the European financial crisis, but has been on the decline in recent years. The surge of Chinese investment has raised concerns and demands for analysis on the negative effects it could have on the EU companies and industries. In this context, the present study aims to analyze the main characteristics of Chinese investment and M&A in Europe, major policy issues between the two sides, the EU’s policy responses, and prospects of Chinese future investment in Eu-rope, going on to draw important lessons for Korea. To summarize the main characteristics of China's investment in Europe, the study found that the EU's share of China's overseas direct investment has continued to increase until recently. Second, investment in the Central and Eastern European Countries (CEECs) is gradually increasing, although it is still insignificant compared to the top five destinations in the EU: Netherlands, Sweden, Germany, Luxembourg and France. Third, China's investment in the EU is being made in pursuit of innovation in manufacturing and to acquire high-tech technologies. When it comes to China's M&A in Europe, the study found that the proportion of indirect China's M&As (via third countries (e.g. Hong Kong) or Chinese subsidiaries already established in Europe) was relatively higher than direct ones. Empirical factor analysis of investment also shows that China's investment in the EU is strongly motivated by the pursuit of strategic assets. Other factors such as institutional-level and regulatory variables are found to have no significant impact, or have an effect contrary to expectations. This suggests that China's investment in the EU is based on the Chinese government's growth strategy, and accompanies an element of national capitalism Today, It is highly expected that the COVID-19 pandemic will have a reorganizing effect on the global value chain (GVC) and Foreign investment regulation in the high-tech sector motivated by national security is emerging as a global issue as the US and the EU are tightening their control. As Korean companies are not free from the risk of falling under such regulations, a thorough and careful response is required. And for the Korean government, it is necessary to prepare legal and institutional measures regulating foreign investment in reference to the US and the EU.
Topic:
Foreign Direct Investment, Financial Crisis, European Union, Economy, Economic Growth, Global Value Chains, and COVID-19
Political Geography:
China, Europe, Asia, Korea, and United States of America

2. The Long Search for Stability: Financial Cooperation to Address Global Risks in the East Asian Region

Author:
C. P. Chandrasekhar
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Forced by the 1997 Southeast Asian crisis to recognize the external vulnerabilities that openness to volatile capital flows result in and upset over the post-crisis policy responses imposed by the IMF, countries in the sub-region saw the need for a regional financial safety net that can pre-empt or mitigate future crises. At the outset, the aim of the initiative, then led by Japan, was to create a facility or design a mechanism that was independent of the United States and the IMF, since the former was less concerned with vulnerabilities in Asia than it was in Latin America and that the latter’s recommendations proved damaging for countries in the region. But US opposition and inherited geopolitical tensions in the region blocked Japan’s initial proposal to establish an Asian Monetary Fund, a kind of regional IMF. As an alternative, the ASEAN+3 grouping (ASEAN members plus China, Japan and South Korea) opted for more flexible arrangements, at the core of which was a network of multilateral and bilateral central bank swap agreements. While central bank swap agreements have played a role in crisis management, the effort to make them the central instruments of a cooperatively established regional safety net, the Chiang Mai Initiative, failed. During the crises of 2008 and 2020 countries covered by the Initiative chose not to rely on the facility, preferring to turn to multilateral institutions such as the ADB, World Bank and IMF or enter into bilateral agreements within and outside the region for assistance. The fundamental problem was that because of an effort to appease the US and the IMF and the use of the IMF as a foil against the dominance of a regional power like Japan, the regional arrangement was not a real alternative to traditional sources of balance of payments support. In particular, access to significant financial assistance under the arrangement required a country to be supported first by an IMF program and be subject to the IMF’s conditions and surveillance. The failure of the multilateral effort meant that a specifically Asian safety net independent of the US and the IMF had to be one constructed by a regional power involving support for a network of bilateral agreements. Japan was the first regional power to seek to build such a network through it post-1997 Miyazawa Initiative. But its own complex relationship with the US meant that its intervention could not be sustained, more so because of the crisis that engulfed Japan in 1990. But the prospect of regional independence in crisis resolution has revived with the rise of China as a regional and global power. This time both economics and China’s independence from the US seem to improve prospects of successful regional cooperation to address financial vulnerability. A history of tensions between China and its neighbours and the fear of Chinese dominance may yet lead to one more failure. But, as of now, the Belt and Road Initiative, China’s support for a large number of bilateral swap arrangements and its participation in the Regional Comprehensive Economic Partnership seem to suggest that Asian countries may finally come into their own.
Topic:
Regional Cooperation, Bilateral Relations, Financial Crisis, Central Bank, IMF, Liberalization, Financial Globalization, and Financial Integration
Political Geography:
China, Asia, and United States of America

3. Maintaining Financial Stability in the People's Republic of China during Financial Liberalization

Author:
Nicholas Borst and Nicolas R. Lardy
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
China's banking system is now the largest in the world, and its capital markets are rapidly approaching the size of those in the advanced economies. Borst and Lardy trace the evolution of China's financial system away from a traditional bank-dominated and state-directed financial system toward a more complex, market-based system. They analyze and outline the optimal sequence of financial reforms needed to manage the new risks accompanying this evolution.
Topic:
Economics, Markets, Financial Crisis, and Reform
Political Geography:
China

4. China’s Hidden Obstacles to Socioeconomic Rebalancing

Author:
Boy Lüthje and Christopher A. McNally
Publication Date:
10-2015
Content Type:
Policy Brief
Institution:
East-West Center
Abstract:
The global financial crisis of 2008-09 led to a policy consensus in China that its socioeconomic development model needed rebalancing. China's rapid development has been based on extensive growth reliant on exports, low wages, environmental exploitation, and the manufacturing of cheap products. China's current plans identify paths to economic rebalancing through intensive growth driven by rising investment in new technologies and manufacturing processes, improved wages and skills, and improved worker and environmental protections. Two industries, automotive and information technology, demonstrate the experience of and opportunities for rebalancing. Both offer improved employment conditions with better wages, but continue to incorporate large swaths of low-wage employment with little protection for workers' health and the environment. Economic rebalancing in China, therefore, has so far only appeared in pockets. Institutional safeguards for wages and labor standards remain constrained by powerful alliances among multinational corporations, Chinese state-owned/private enterprises, and the Chinese state.
Topic:
Economics, Political Economy, Labor Issues, and Financial Crisis
Political Geography:
China

5. China’s Hidden Obstacles to Socioeconomic Rebalancing

Author:
Christopher McNally and Boy Lüthje
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
East-West Center
Abstract:
The global financial crisis of 2008-09 led to a policy consensus in China that its socioeconomic development model needed rebalancing. China's rapid development has been based on extensive growth reliant on exports, low wages, environmental exploitation, and the manufacturing of cheap products. China's current plans identify paths to economic rebalancing through intensive growth driven by rising investment in new technologies and manufacturing processes, improved wages and skills, and improved worker and environmental protections. Two industries, automotive and information technology, demonstrate the experience of and opportunities for rebalancing. Both offer improved employment conditions with better wages, but continue to incorporate large swaths of low-wage employment with little protection for workers' health and the environment. Economic rebalancing in China, therefore, has so far only appeared in pockets. Institutional safeguards for wages and labor standards remain constrained by powerful alliances among multinational corporations, Chinese state-owned/private enterprises, and the Chinese state.
Topic:
Economics, Markets, Science and Technology, Labor Issues, and Financial Crisis
Political Geography:
China

6. The Shadow Banking System of China and International Regulatory Cooperation

Author:
Zheng Liansheng
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
The shadow banking system was defined in 2007 by Paul McCulley, the managing director of Pacific Investment Management Company, but it began to receive significant attention in the immediate aftermath of the GFC. Since the beginning of the financial crisis in 2008, the regulatory agencies of different countries, international organizations and think tanks have all carried out in-depth research into shadow banking and have released a series of results. Regulatory reforms have also addressed shadow banking, the most important of which is the US Dodd-Frank Act of 2010, which aims to restrain the expansion and risk taking of shadow banking in the United States. The United Kingdom and the European Union have also adopted reforms and built up a supervisory system to track the risks of the shadow banking system.
Topic:
Financial Crisis
Political Geography:
United States, China, United Kingdom, and Europe

7. Service Sector Reform in China

Author:
Ryan Rutkowski
Publication Date:
01-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Faced with slowing economic growth, Chinese policymakers now recognize that the service sector of the economy—transportation, communications, finance, and health care—could spur economic activity and employment. The catch is that China must reform these and other areas to accomplish this goal. Chinese leaders have outlined an ambitious agenda for reform, but myriad vested interests could slow or block their plans. This Policy Brief evaluates the steps taken so far and the difficulties that lie ahead in implementing them. If policymakers fail to reform and open up the service sector, they run the risk of seriously impairing China's growth prospects.
Topic:
Economics, International Trade and Finance, Labor Issues, Financial Crisis, and Reform
Political Geography:
China

8. Is China's Property Market Heading toward Collapse?

Author:
Li-gang Liu
Publication Date:
08-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
China's property market has slowed significantly since the first half of 2014, with sharp declines in sales and a buildup in the inventory of new homes. This sharper than expected downturn—which has affected not only second- and third tier smaller cities but also first-tier megacities such as Beijing, Shanghai, Shenzhen, and Guangzhou—contrasts with last year's buoyant sales and double-digit price surge. Compounded by fears of a default in the shadow banking system and the perception of a highly leveraged Chinese economy, the sudden declines in the property sector are being watched closely. Many commentators believe this could be a turning point for the sector, triggering a hard landing of the Chinese economy and even a financial crisis. Over the last decade, China's property sector has become an important pillar for the country's growth as well as the key source for elevated commodity prices. A property market slump would hurt other sectors, as well as drag down resource-rich economies that rely heavily on China to buy their exports.
Topic:
Economics, Financial Crisis, and Urbanization
Political Geography:
Japan, China, and United Nations

9. China in the G20 Summitry: Review and Decision-making Process

Author:
Alex He
Publication Date:
10-2014
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
As the largest emerging economy, China believes that the Group of Twenty (G20), instead of the Group of Eight (G8), is the ideal platform for its participation in global governance. This paper examines the reasons why China joined the G20 rather than the G8, and then focuses on a detailed review of China's participation in G20 summits since the enhanced forum began in 2008. China took a very active and cooperative attitude in dealing with the global financial crisis in 2008-2009. The paper observes that China also insisted on its own agenda for reforms to the international monetary system, through reforms to the international financial institutions that manage it — in particular, raising the number of voting shares and the representation of developing countries at the IMF and the World Bank. Based on the reviews of China's performance in the G20 summits since 2008, the paper explores China's policy making through its participation in the G20, determining that it is shaped by several major economic departments in addition to the Ministry of Foreign Affairs, and coordinated by a vice premier responsible for economic and financial affairs. The paper concludes that China has gained immensely from its participation in the G20. Most importantly, China entered the centre stage of global economic governance through the G20, which allowed the country to demonstrate that it is a responsible great power, and communicate and maintain relations with other major powers. The main challenges China has faced since joining the G20, from the perspective of some Chinese scholars, are a lack of capacity for agenda setting and shaping initiatives, as well as inadequate communication and coordination among different government departments and between the Sherpa and financial tracks of the G20.
Topic:
Economics, International Political Economy, International Trade and Finance, International Monetary Fund, Global Recession, Financial Crisis, and World Bank
Political Geography:
China

10. Examining China’s Assertiveness through the Eyes of Chinese IR Scholars

Author:
Huiyun Feng and Kai He
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
Centre for Non-Traditional Security Studies, S. Rajaratnam School of International Studies
Abstract:
Since the 2008 global financial crisis, China‟s diplomacy has moved towards a more confident or even assertive direction in international politics. Economically, the Chinese Premier refused to re-value the Chinese currency as the United States requested and instead started to lecture about U.S. economic mismanagement during the 2008 financial meltdown (Pomfret, 2010). Diplomatically, China responded furiously to Obama‟s decision of arms sales to Taiwan and meeting the Dalai Lama in early 2010, threatening to place sanctions on American companies. Politically, China reluctantly cooperated with Western countries, especially the United States, to punish either North Korean or Iranian provocations to the international order. Many other examples, from the Copenhagen Conference to the diplomatic standoffs between China and its neighbours, have also been listed as indications of China‟s assertive behaviour since 2008 (Swaine, 2010, 2011; Swaine and Fravel 2011; Perlez 2012; Ross 2012; He and Feng 2012). In particular, the 2012 Scarborough Shoal crisis with the Philippines, the still on-going flare-ups with Japan on the Senkaku/Diaoyu disputes, and the recently intensified tension with Vietnam in the South China Sea seemingly have further intensified regional concerns over China‟s rise. It is worth noting that some scholars have started to question the validity of the discourse regarding China‟s assertiveness in diplomacy. For example, through critically examining the “assertiveness” meme in the U.S. pundit and academic circles, Johnston questions: “How new and assertive is China‟s new assertiveness?” (Johnston, 2013). Although the extent and the nature of the assertiveness are still debatable, it is clear that China‟s foreign policy has shifted to a new direction, albeit temporarily. The goal of this paper is not to debate the temporal origins or intensity of China‟s assertiveness. Instead, it focuses on examining the perceptual roots of China‟s policy changes. As David Shambaugh (1991) points out, behaviour is principally a function of perception. In order to make sense of Chinese behaviour, we need to dig into the mindset of Chinese leaders. However, it is difficult to gauge what political leaders really perceive due to the political hierarchy and the complex nature of the decision-making process in any state system, especially China. In this research we examine Chinese leaders‟ perceptions and attitudes regarding Chinese foreign policy through the eyes of China‟s International Relations (IR) scholars. We use Chinese IR scholars as a “proxy measure” to make sense of Chinese leaders‟ perceptions because Chinese IR scholars serve as the mediator between the Chinese leadership and the general public (Shambaugh, 1991; Saunders, 2000). Based on an original opinion survey of Chinese IR scholars at the annual conference of the Chinese Community of Political Science and International Studies (CCPSIS) in Beijing in July 2013, we empirically test the perceptual roots of Chinese scholars‟ preference for an assertive diplomacy. In particular, we examine two competing arguments about China‟s assertiveness. Some scholars suggest a “power perception” argument in which China‟s assertiveness is rooted in Chinese leaders‟ changing perceptions regarding its power status versus the United States. In other words, as the 1 United States and other Western countries were troubled by their economic downturn, Chinese leaders became overly confident with China‟s rise and thereby started to say “no” to the United States as well as show its “teeth” to its neighbours (Nye, 2010; Green, 2010). Others advocate a “policy reaction” argument, which attributes China‟s assertiveness to a nationalist reaction to unfriendly international forces, especially from the West, which threatened to block China‟s rise. Continuous economic growth also instigated the rise of nationalism in Chinese society, which in turn pushed the Chinese government to react to Western criticisms and “plots” with more fury and toughness (Carr, 2010; Small, 2010; Swaine, 2011; Ross, 2012). In other words, China‟s assertiveness in diplomacy grew from an intentional reaction to the strategic pressure from the United States and the outside world. There are three parts in the paper. First, we briefly introduce our original survey conducted in the summer of 2013. Second, we develop two hypotheses based on the current debate about China‟s assertive diplomacy and test them by using the structural equation modeling (SEM) technique. We suggest that both the “power perception” and “policy reaction” arguments make sense in explaining China‟s assertiveness in diplomacy. However, our findings suggest that a more pessimistic perception regarding Chinese power is more likely to be associated with a preference for an assertive foreign policy. In other words, it is not a confident or an overly confident China but a lack of confidence instead, which is more likely to trigger an assertive foreign policy in China. In the conclusion section we discuss the implications of our findings for China‟s future international relations
Topic:
Diplomacy, Imperialism, International Cooperation, and Financial Crisis
Political Geography:
United States, China, Iran, Middle East, Asia, and North Korea