China's Sovereign Wealth Funds: origins,development, and future roles

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.     

International Political Economy from a Chinese Angle

In the 1990s, international political economy (IPE) as a set of concepts to interpret the current and future world system caught on quickly among Chinese scholars and policy analysts. Recent events (the Asian financial crisis and the US role, WTO negotiations, US‐Japan trade disputes) combined with China's historical experience (imperialism, war, revolution) and aspirations (to be a regional power) have given IPE specialists a different perspective on and language for the issues and events of today's global political economy. Zhu Wenli highlights the divergence between US and PRC views and interpretations on concepts of hegemony (the role of the US in a unipolar system), globalization, development models, and economic security, arguing that understanding this theoretical gap helps us to understand the current policy gap. She concludes with a reference to the limited role that international relations concepts and ideas play in the formation of foreign policy.     

The Ascendency of State-owned Enterprises in China: development,controversy and problems

The state sector still plays an important role in China's economy. One of the key development phenomena characterizing the Chinese economy is the rapid ascendency of state-owned enterprises (SOEs) and the resurgence of the state. The strength of China's SOEs is projected in the centrally administrated state-owned enterprises (CSOEs). They are the backbone of the national economy, spearheading national economic development and Beijing's ‘going-out’ strategy. The CSOEs have expanded their reach and increased their power, domestically and globally. In seeking to boost local GDP growth, the eastern provinces in China have joined the western provinces in a fierce contest to attract investment from SOEs. Nevertheless, the rapid ascendency of the SOEs has brought many negative consequences for China's economic, social and political development by causing conflict with the market-oriented development direction of Chinese economic reform and hindering fair competition between state-owned and non-state-owned enterprises.     

China Goes to Africa: a strategic move?

Entering the twenty-first century, particularly under the reign of Hu Jintao, China began to pursue an increasingly pro-active diplomacy in Africa. Most analysis on China's offensive diplomacy in Africa focuses on Beijing's thirst for energy and raw materials, and for economic profits and benefits. That is why it is often called ‘energy diplomacy’ or ‘economic diplomacy’ as if China, just like Japan in the 1980s, became another ‘economic animal’. But if one looks at the history of the PRC's foreign policy, Beijing has seldom pursued its diplomacy from purely economic considerations. Is this time any different? This article exams China's diplomacy in Africa from a strategic and political perspective such as its geo-strategic calculations, political and security ties with African countries, peacekeeping and anti-piracy efforts in the region, support for African regionalism, etc. It argues that China's diplomatic expansion in Africa, while partially driven by its need for economic growth, cannot be fully understood without taking into consideration its strategic impulse accompanying its accelerating emergence as a global power. Africa is one of China's diplomatic ‘new frontiers’ as exemplified by new Chinese leader Xi Jinping's maiden foreign trip to Africa in 2013.     

China and Asian regionalism: Challenge and policy choice

Regionalism has become an interesting phenomenon in Asian international relations. Driven by fast growing trade and investment, Asian countries have developed variegated patterns of economic co‐operation and a complex level of interdependence among themselves. Although the growing Asian regionalism is very much an economics‐driven process, it has profound impacts on regional political organization. This analysis examines Beijing's changing attitudes toward Asian regionalism and its policy choice in the regional economic integration. It is argued that the integration of the Chinese economy into the regional structure is promoted by the government as well as driven by market dynamics. Although Beijing has let the Chinese economy develop into the regional ‘flying geese’ structure, the best policy choice for China, as many Chinese scholars have argued, would be a three‐circle strategy of integrating into the world economy and a strategy of ‘market for technology’ in regional economic co‐operation. This analysis also discusses the regional political obstacles impeding co‐operation across national borders. It is argued that healthy bilateral relations and more political will toward regional multilateralism on political issues would be instrumental for future regional prosperity and stablity in Asia.     

Foreign banks in the People's Republic of China

Many foreign banks are attracted to the PRC economy, as a result of its continuing economic growth and financial liberalisations. This paper provides an empirical analysis of the factors contributing to this development and of the features of those foreign banks choosing to enter this market. In addition, a survey questionnaire permits an assessment of the attractions and weaknesses of the PRC banking market as perceived by foreign banks. It has been shown that large, financially sound foreign banks have helped to stimulate trade and investment in the PRC. However, China's restricted movement of capital and inadequate legal framework has reinforced the need for international banking services from Hong Kong.     

China's WTO Membership and the Non-Market Economy Status: discrimination and impediment to China's foreign trade

This article provides a Chinese perspective on the terms of China's WTO accession, highlighting the negative impact of some discriminatory conditions that China accepted in order to join the WTO on its foreign trade and global competitiveness in the last decade. The author uses the non-market economy status of China as a case study to support the argument that these discriminatory conditions imposed on China upon accession have not only impeded the healthy development of China's foreign trade, but also violated the ‘non-discrimination’ principle of the WTO.     

Why China has been successful in attracting foreign direct investment: A transaction cost approach

An important factor that has contributed significantly to China's economic growth over the past two decades has been the dramatic increase of foreign direct investment in China. Based on the observation that overseas Chinese have been the dominant supplier of foreign direct investment in China, this paper employs the transaction cost approach to provide an explanation as to why China has been successful in attracting foreign direct investment. It first describes and analyzes the economic ‘institution’ in China. Then it shows that overseas Chinese have a competitive advantage in investing in China because they have the experience and knowledge of operating their business in an ‘institution’ that is similar to the ‘institution’ in China. Finally, the paper argues that some policies in China, such as the flexible contractual forms (particularly joint ventures) and the establishment of special economic zones, further reduce the transaction cost of doing business in China and contributed to attracting foreign direct investment.     

The political dynamics of regulatory change: Speculation and regulation in the real estate sector

China's real estate sector has experienced dramatic changes since the late 1980s. This article explores the political economy of China's recent ‘real estate fever’ and examines the government's efforts to deal with rampant speculation and foster the growth of a real estate industry. It suggests that the political dynamics of regulatory changes in the real estate sector illustrate the problems of Chinese policy making in the reform era.     

The Closed Doors of Courts: China's judicial filtration of financial litigations

In China, courts may refuse to accept certain legal actions involving financial matters without any solid or explicit legal grounds. An analysis of such a phenomenon should help scholars to understand the functioning logic of China's judicial power. This article suggests that there are a number of reasons behind the filtration system, including a lack of applicable legal rules, a weak ability of the courts to understand complicated financial matters, the background of the economic system transition, the political consideration of ‘maintaining social stability’ and judiciary self-interest. Filtration has inevitably had a negative effect on China's financial markets, and reform is thus necessary.     

Nationalism,Ideology and China's ‘Fourth Generation’ Leadership

This paper examines the extent to which China's ‘Fourth generation’ leadership might be inclined to place a greater emphasis on nationalist rhetoric both in China's international relations and in domestic policy. It explores two different views of nationalism, namely state-centred and popular. With the decline in the public impact of official ideology, the Party–state has given tacit recognition to nationalism as one potential source of regime legitimisation. However, this article argues that by placing the Party at the centre of the official discourse the state-centred view of nationalism restricts the extent to which the Party–state can mobilise nationalist symbolism in support of its leadership and makes the Party vulnerable to criticism from more popular conceptions of nationalism. The priority given to developing the economy means China's leaders must downplay popular criticism which can focus on the negative consequences of China's growing interaction with the wider world. Under China's ‘Fourth generation’ leadership this tension may deepen. China's new leadership are unlikely to resort to ‘wrapping themselves in the flag’ as some commentators have suggested.     

Nationalism and Democratization in Contemporary China

The crippled economic and political reform in China has come with two schools of thought: the new-left and nationalism. The new-left focuses on domestic issues, while nationalism tackles more international relationships. This paper explores the effects of radical nationalism on China's democratization process. It argues that if nationalism takes the dominant position in China's political process, Chinese reform will go astray.     

Policy elites in the political economy of China's exchange rate policymaking

This paper examines the political economy of making China's exchange rate policy, with a focus on the post-Deng reform period. First it analyses the structure of elite economic policymaking, especially on exchange rate policy, pinpointing core policymakers in that structure. Second, the paper analyses the roles and responsibilities of key economic ministries, and explains how the ministries' changing roles and responsibilities in the transforming economic environment of the reform period have affected their relative influence and the positions they pursue on exchange rate policy. Results of the analyses are then applied to explain the RMB devaluation policy in 1989 and the no-devaluation policy during the Asian financial crisis.     

Xiao‐kang: Deng Xiaoping's socio‐economic development target for China

Ever since xiao‐kang or XK, literally meaning a ‘relatively comfortable life’, was first slated by Deng Xiaoping in 1979 to be China's main development target, the concept has become a codeword for China's socio‐economic development. It was incorporated in several major Party documents and formally adopted as the key development target by three consecutive Five‐Year Plans. What is the real meaning of XK? This paper analyses China's first XK Index which was published in 1992, based on a cluster of economic and social indicators relating to income, food consumption, housing, and human resource development. It will be seen that XK is actually a normative concept, fuzzy and grossly imprecise, especially when applied to a transitional economy like China. What constitutes XK to Deng may well be perceived differently by the new generation of Chinese. Such is the continuing social challenge of China's economic development.     

Returnee Entrepreneurs: impact on China's globalization process

Recent research on returning Chinese students has focused on their role as an alternative solution to their home country's mandate to build technological capacity. This study shows the depth of the ‘brain circulation’ that is underway and the fact that overseas students are not only serving China from abroad or by returning, but after they return they play a leading role in many aspects of China's ‘going out’ strategy. These returnee entrepreneurs present many advantages to the Chinese economy. They have studied at the best universities in the world, were deeply involved in the New Economy, and have gained valuable experience in listed companies overseas. They often possess venture capital, many have experience working with some of the best MNCs in the world, and they serve to contribute enormously to China's current economic engagement with the world. The paper describes the returnees' impact on China's globalization drive and analyzes the factors leading to their success in comparison to MNCs and indigenous Chinese firms.     

The China challenge: Theoretical perspectives and policy implications

Over the past few years there has been a heated debate in the West over the potential challenge of an increasingly strong and assertive China to the Asia‐Pacific region and to the world in general. This article offers a systematic analysis of the debate on China's emerging role in the international system and its security implications from the theoretical perspectives of realism and liberalism. While both international relations theories have provided valuable insights, neither of them alone is able to unravel the puzzle of whether a prosperous and powerful China will be a major force of stability or a threat to international peace. Drawing on the theory of trade expectations, this article shows the conditions under which high interdependence between China and its trading partners will lead to pacific or belligerent Chinese behavior. If Chinese decision‐makers’ expectations for future trade are high, they will be less likely to use force to deal with unresolved disputes with neighboring countries. If, however, they have a negative view of their future trading environment, they will be likely to take measures, including military actions, to remove any obstacles that might forestall the pursuit of great‐power status. For the moment, China's expectations of future trade are by and large optimistic, but there is evidence of growing Chinese suspicion of a Western ‘conspiracy’ to contain China which may alter Beijing's future perceptions. To ensure that the rise of China will not cause regional and global instability, the outside world should seek to integrate China into the international community by pursuing policies that will have a positive influence on China's expected value of trade. In the meantime, some elements of the balance of power strategy need to be introduced in order to curtail China's expected value of war.     

Preservation,Prosperity and Power: what motivates China's foreign policy?

This article describes the motives behind the making of the current status-quo and risk-averse Chinese foreign policy. It identifies a three-P incentive structure that is based on the political preservation of the CCP regime, China's economic prosperity, and Beijing's pursuit of power and prestige. These three motives are stable and overlapping, featuring Taiwan and the relationship with the United States as the key issues. Beijing is expected to be motivated by these peculiar motives over the next two decades; but new internal and external developments may greatly change these motives and generate new impetus for China's foreign policy. Although the official line in Beijing is still the mild ‘peaceful development’, after a fling with the more majestic idea of ‘peaceful rise’, the rise of nationalist emotions and demands in the PRC continues.     

China's post‐1979 uneven regional policy: Shanghai and Guangdong

This article examines the effects of China's uneven regional development policy, especially in relation to Shanghai. It analyses the evolving role of Shanghai and the constraints that it has operated under during the reform period. Discussion will be particularly devoted to the areas such as the fiscal transfer, central investment in the municipality, the tax and other incentive program allowed to increase the inflows of foreign direct investment by adopting a series of comparisons with Guangdong province. The article argues that it is not economically efficient for China to ‘open its door’ by creating new cities in its southern area while neglecting to improve existing facilities in Shanghai and other advanced cities. This article also suggests that social‐economic institutional change is the same important source of Shanghai's difficulty in keeping pace with Guangdong as the preferential treatment given to Guangdong by the central government in the 1980s.     

How Do Americans Evaluate China's International Responsibility? An Empirical Assessment

China in recent years has been asked by other major powers to take a greater share in international responsibility in response to the rise in China's national capability. Negative perceptions about how China is dodging its international responsibility exist not only among policy makers around the world, but have spread to worldwide mass publics, especially across the American people. In this article, we apply the dataset from the ‘Americans’ Attitudes toward China Survey' (AACS) to investigate what the American public think of China's international responsibility and which factors explain the varying evaluations from different theoretical perspectives. The results indicate that Americans' negative evaluations of China's international responsibility are associated with poor ratings regarding China's fulfillment of its domestic obligations and apprehension regarding China's potential threat, but has little to do with China's international behavior. To reduce these negative evaluations, China needs to improve its human rights conditions, give people more political rights, and convince the American public of the benevolence of its ascending power. In addition, persistent efforts toward soft-power construction are also very important since Americans who are interested in Chinese culture or knowledge tend not to think that China is dodging its international responsibility.     

From functional integration to structural readjustment: Taipei–Beijing relations and the role of the United States

Regardless of the continued stalemate in the political arena, trade and economic interactions between the two sides of the Taiwan Strait have increased steadily. Both aggregate data and the results of survey research have testified to the existence of functional integration of the two societies across the Taiwan Strait. In addition to functional integration, structural readjustments have also been made by political authorities both in Taipei and Beijing so as to facilitate continuity of trade and economic relations. These types of mutual accommodations include: establishing proper ‘unofficial’ agencies on both sides to serve as instruments of practical contacts and negotiation; the more flexible definition of ‘One China’ by Beijing; and the opening of ‘small links’ between Quemoy and Amoy by Taipei. Beijing's refusal to grant Taipei any official diplomatic status and Taipei's reluctance to accept the ‘One China’ principle remain major obstacles to cross‐Taiwan Strait relations. The United States will continue playing a key role in future cross‐Strait relations. Beijing seems to be content, at least temporarily, to maintain cordial relations with the United States in exchange for the latter's adherence to the ‘One China’ principle and rejection of the option of Taiwan independence. Whether Taipei will use enhanced US commitment to Taiwan's security to strike a better deal with Beijing for gradual cross‐Strait integration or to utilize increased American protection to move onto the separatist road will be affected by domestic politics in Taiwan, future US policy toward to the island, and Beijing's response to Taipei's demand for security and international recognition.