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121. 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

122. Changing Environment for Opening of Chinese Financial Sector and Implications

Author:
Sangbaek Hyun, Suyeob Na, Young Sun Kim, Koun Cho, and Bongkyo Seo
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The opening of China's financial sector has progressed at a very slow pace, unlike the manufacturing and trade sectors that have pushed for an active opening to the outside world. The Chinese economy has been growing rapidly while serving as a global production base, but since 2012, it has become necessary to modify its approaches to achieve growth as it enters an era of medium-speed growth. Recently, new reform and opening measures have been taken in various fields to improve the quality of the Chinese economy, and the need for reform and opening in the financial sector has also increased. Internally, the financial system centered on China's state-owned commercial banks has focused on indirect financing, which has served as a major obstacle to upgrading China's economy and industry to the next level, further increasing the need for reform and opening of the financial sector. Moreover, externally, the U.S.-China conflict which began in earnest in 2018, is applying strong pressure toward reform and opening in China’s financial sector. The Chinese government began to show a proactive attitude toward financial opening amid such internal needs and external pressure, and an important development was seen in China’s financial opening when President Xi Jinping declared further opening measures at the Boao Forum in April 2018. The Chinese financial authorities have prepared follow-up measures related to financial opening, and the Chinese government’s efforts toward financial opening in the three years from 2018 to 2020 yielded more results than the ten-year opening period since its accession to the WTO. Against this backdrop, this study examines the main contents of China’s financial opening process, which has been accelerating recently, and derives evaluation and implications.
Topic:
Finance, Economy, Economic Growth, and Banks
Political Geography:
China, Asia, and Korea

123. A Comprehensive Evaluation on Korea’s ODA to Rwanda’s Agriculture Sector and Its implications for Strategic Approaches

Author:
Young Ho Park, Minji Jeong, and Soo Hyun Moon
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
There has been a growing consensus in the national and international aid architecture that sporadic or scattered aid modality should be avoided. This study conducted a comprehensive cluster evaluation on Korea’s agricultural ODA to Rwanda between 2013 and 2017, with two newly devised indexes: Cluster Performance Index (CPI) and Resource Allocation Index (RAI). Every Korean agricultural ODA project was categorized into five clusters and numerically evaluated against criteria widely used in the evaluation of development projects: relevance, efficiency, effectiveness and sustainability. Our cluster evaluation reveals that projects are mostly planned appropriately, but in some clusters, large amounts of the budget have been invested in poorly planned projects. Regarding efficiency, there was considerable room for improvement in all clusters. Particularly, in the Monitoring and Evaluation (M&E) category, all clusters scored below average. Concerning performance evaluation, all clusters scored relatively high in effectiveness, specifically in goal achievement. Lastly, in terms of sustainability, risk management was found to be relatively inadequate in all clusters. Based on the lessons from the aforementioned observations and analysis results, this study suggests ODA quality can be improved by optimizing budget allocation, improving monitoring efficiency, creating synergistic effects through cluster linkage, and developing agricultural value chain program.
Topic:
Agriculture, Foreign Aid, Economy, and Value Chains
Political Geography:
Africa, Asia, Korea, and Rwanda

124. Fourth Industrial Revolution in Japan: Technology to Address Social Challenges

Author:
Gyupan Kim, Hyongkun Lee, Boram Lee, Jongeun Lee, and Wonju Son
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
In Japan, the challenges posed by its low birthrate and aging population expanded rapidly with the collapse of the bubble economy in the early 1990s, and in March 2011, energy and environmental problems such as power supply shortages and nuclear radiation issues occurred in the wake of the Great East Japan Earthquake and Fukushima nuclear accident. Also, with the beginning of the coronavirus pandemic in January 2020, digital transformation has emerged as a social challenge. In particular, Japan's aging population combined with a decrease in the working age population, has caused the government to face fiscal crisis due to the burden of social insurance, and a sense of crisis of labor shortage in the medical, manufacturing and logistics sectors. This is also leading to a sense of crisis at local governments as well, seen with the collapse of the medical service supply system under “Tokyo centralization,” the rapid increase of the vulnerable in transportation due to the super-aging of rural areas, and the risk of extinction of local communities. The analysis on the healthcare and medical care sectors was conducted in chapter 2, and the manufacturing, mobility, and logistics sectors in Chapter 3, and the local revitalization in Chapter 4 respectively. And chapter 5 of conclusion remarks presents policy implications for the Korean government.
Topic:
Demographics, Industrial Policy, Science and Technology, Nuclear Power, and Economy
Political Geography:
Japan and Asia

125. Economic Policies of GCC Countries in the Era of Low Oil Prices and Their Policy Implications for Korea

Author:
Kwon Hyung Lee, Sung Hyun Son, Yun Hee Jang, and Kwang Ho Ryou
Publication Date:
02-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Over the past several decades, the six member countries of the Gulf Cooperation Council (GCC) have implemented economic policies for industrial diversification to lessen severe dependence on the oil industry. Such policy efforts have been driven by their awareness of macro-economic and structural risks from heavy volatilities in international oil markets in terms of fiscal and trade sectors. For instance, the drop in international oil prices reduces export performance in the oil and natural gas sectors, which in turn results in a decline in the stability of fiscal revenue. The recent trends of low oil prices since 2014, as well as high unemployment rates, have strengthened the policy regime for industrial diversification and job creation supported by mid- to long-term economic plans of the GCC countries. This report reviews what has been emphasized in the areas of industrial, employment, trade and investment policies. We then derive implications for Korean companies and policymakers for sustainable cooperation between Korea and the Middle East.
Topic:
Oil, Economy, Diversification, and Trade
Political Geography:
Asia, Korea, and Gulf Nations

126. The Effects of US-China Rivalry on Latin America and Their Implications

Author:
Sungwoo Hong, Yeo Joon Yoon, Jino Kim, Jeewoon Rim, and Jimin Nam
Publication Date:
02-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The conflict between the United States and China may be the issue of most importance as well as interest to the world, prior to COVID-19. This conflict between the two countries is appearing not only in the economic sector, but also in various field such as politics, diplomacy, and military affairs. Such competition between the two countries is likely to escalate further as multilateral systems such as the WTO are threatened and protectionism intensifies in the post-COVID-19 world. Even within Latin America, the competition between the two countries frequently appears in a variety of forms. Conflicts between the United States and China in Latin America tend to occur mainly in the infrastructure sectors. Furthermore, the United States pressured Latin American countries to choose between the United States and China, with the results of this pressure depending on the political orientation of the ruling government. In order to investigate the impact of retaliatory tariffs between the two countries on Latin American countries’ exports and welfare, we employ an event analysis for exports and computational general equilibrium (CGE) model for welfare, with Argentina, Brazil, Mexico, and Chile as the subject of our analysis. Based on the outcome of the event study, Brazil’s exports to the United States moderately increased due to the tariff imposition, and such an effect persisted for short term. Its exports to China rose considerably immediately after the tariff imposition, and then the impact tended to decrease over time. By contrast, it is difficult to conclude that the tariff imposition had a statistically significant and lasting effect on the exports of the remaining three countries to the United States and China. As a result of the analysis using the CGE model, meanwhile, the tariffs imposed between the United States and China trivially increased the welfare of Latin American countries.
Topic:
Foreign Policy, Economy, Tariffs, Exports, Trade, and Rivalry
Political Geography:
China, Asia, South America, Latin America, Korea, and United States of America

127. Does China Really Dominate Global Innovation? The Impact of China’s Subsidized Patent Application System

Author:
Jonathan Putnam, Hieu Luu, and Ngoc Ngo
Publication Date:
03-2021
Content Type:
Special Report
Institution:
Hudson Institute
Abstract:
Over the past two decades, China’s economy has grown impressively, while its patented innovations have grown at an even higher rate. But this patent application trend should not simply be accepted at face value. The Chinese government has subsidized patent applications as part of its overall domestic industrial policy agenda, which underlies China’s claim to have “won” the global innovation race, especially in next-generation technologies like 5G or AI. Our study shows that high rates of patenting do not necessarily mean dominance, or even leadership, among the world’s innovation economies. China’s recent announcement that it plans to end subsidies for patent applications by 2025 perhaps acknowledges that its policy is no longer necessary or desirable. In any case, uncritical reports of China’s innovation dominance, overall or in prominent high-tech sectors, should be viewed skeptically, especially by policymakers.
Topic:
Intellectual Property/Copyright, Law, Economy, and Innovation
Political Geography:
China and Asia

128. Taking the Helm: A National Technology Strategy to Meet the China Challenge

Author:
Martijn Rasser and Megan Lamberth
Publication Date:
01-2021
Content Type:
Special Report
Institution:
Center for a New American Security (CNAS)
Abstract:
The United States faces a challenge like no other in its history: a strategic competition with a highly capable and increasingly resourceful opponent whose worldview and economic and political models are at odds with the interests and values of the world’s democratic states. A rising China poses a fundamental challenge to the economic vitality and national security of the United States and its allies and the currency of liberal democratic values around the world. Technology—a key enabler for economic, political, and military power—is front and center in this competition. Technological leadership—how a country invents, innovates, and deploys technologies to compete economically and to secure its interests—will shape the coming years to a remarkable degree. The United States has maintained such leadership for decades. Today, that leadership is at risk. The United States is failing to rise to the occasion—its policies inadequate and disconnected and its response reactive and disjointed. The country needs a new approach to regain the initiative. The stakes are high and the window for action is closing. The U.S. government must craft a national technology strategy for an era of sustained competition with a highly capable contender: a comprehensive framework to plan, execute, and update its technology policies. The strategy is a whole-of-nation approach—including human capital, infrastructure, investments, tax and regulatory policies, and institutional and bureaucratic processes—to preserve its current advantages and to create new ones. To be effective, creating and executing the strategy must involve stakeholders from federal and state governments, private industry, academia, and civil society. The overarching goal is to maintain the United States’ standing as the world’s premier technology power so that it can empower its citizens, compete economically, and secure its national interests without having to compromise its values or sovereignty. The purpose of this report is to provide the intellectual framing for what a national technology strategy is and why the United States needs one. It does not offer a list of prioritized technology areas. Rather, it provides guidelines for how to think about such prioritization and what qualities should inform the resulting policy decisions.
Topic:
Politics, Science and Technology, and Economy
Political Geography:
China, Asia, and United States of America

129. Navigating the Deepening Russia-China Partnership

Author:
Andrea Kendall-Taylor and David Shullman
Publication Date:
01-2021
Content Type:
Special Report
Institution:
Center for a New American Security (CNAS)
Abstract:
Ties between China and Russia have grown. In virtually every dimension of their relationship—from the diplomatic to defense and economic to informational realms—cooperation between Beijing and Moscow has increased. Political observers in Washington and beyond have noted their alignment, yet they remain divided over what these growing ties portend. Perhaps the most concerning—and least understood—aspect of the Russia-China partnership is the synergy their actions will generate. Analysts understand well the challenges that Russia and China each pose to the United States. But little thought has been given to how their actions will combine, amplifying the impact of both actors. As this report highlights, the impact of Russia-China alignment is likely to be far greater than the sum of its parts, putting U.S. interests at risk globally. The synergy between Russia and China will be most problematic in the way that it increases the challenge that China poses to the United States. Already, Beijing is working with Moscow to fill gaps in its military capabilities, accelerate its technological innovation, and complement its efforts to undermine U.S. global leadership. Simply put, Russia is amplifying America’s China challenge.
Topic:
Diplomacy, Partnerships, Economy, and Strategic Interests
Political Geography:
Russia, China, Eurasia, Asia, and United States of America

130. Economic Cracks in the Great Wall of China: Is China's Current Economic Model Sustainable?

Author:
Thomas J. Duesterberg
Publication Date:
12-2021
Content Type:
Special Report
Institution:
Hudson Institute
Abstract:
Since Deng Xiaoping changed the trajectory of Chinese economic policy in 1978, the People’s Republic of China (PRC) has amassed an impressive record of economic growth. Many economists and political analysts, however, have come to question whether the top-down, mercantilist economic system in the PRC is sustainable in the medium to long term. This report explores the long-term structural and short-term economic problems in contemporary China, and in particular considers whether the Xi Jinping regime can avoid a financial crisis and effectively manage a transition to a stable new equilibrium. Structural issues include a looming downturn in the population and in the workforce; associated problems with an underdeveloped and underfinanced social safety and welfare net; income and regional inequality; environmental degradation; and domestic shortages of raw materials, agricultural production, and energy resources. The acute economic problems analyzed in the paper are a real estate bubble, the accumulation of dangerous levels of debt, dependence on external markets and financing, a difficult transition to a more consumer-oriented and less investment-driven economy, a crackdown on dynamic digital and financial sectors, a return to dominance of low-productivity state-owned enterprises and manufacturing firms, and weak governance from an increasingly authoritarian and unaccountable regime. Many of these acute issues result from Xi’s changes in policy since 2013. Xi’s turn toward greater economic self-reliance while maintaining mercantilist trade relations signals an effective decoupling from the US and allied economies. Some historical examples of bubble economies and financial crises are discussed as possible analogies to the current situation in China. One conclusion is that the Middle Kingdom will see a much slower-growing economy, which makes addressing the structural issues much more difficult. Inability or lack of determination to address the large array of issues may also undermine the political legitimacy of the current regime, which has been buttressed since 1978 by a rapid growth model based on debt, real estate, and investment, including infrastructure. The concluding section of this report offers policy tools that the United States and its allies could deploy to induce China to be a more responsible stakeholder in the world economy and a more reliable contributor to global sustainability. The tools considered in the study include trade policy and export controls, expanded oversight of foreign investment (both direct and portfolio investment), cooperation with allies on China policy, and defense-related sanctions. The paper also suggests that deployment of these tools could be a factor in weakening China’s economy as well as a means to convince its leadership to pursue less mercantilist and authoritarian global strategies, which are harmful to the US economy and to global stability.
Topic:
Foreign Policy, International Trade and Finance, Finance, Economy, and Economic Growth
Political Geography:
China and Asia