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281. Signaling Legitimacy to Foreign Investors: Evidence from Chinese IPOs on U.S. Markets.

Author:
Xu Jin, Donald Patton, and Martin Kenney
Publication Date:
05-2015
Content Type:
Working Paper
Abstract:
From 1999-2010 120 Chinese emerging growth firms undertook initial public stock offerings on U.S. markets. This provided a remarkable natural experiment for exploring how this class of organizations from a radically different political economy established their legitimacy and how, once established, this legitimacy permitted organizational and personnel flexibility for later firms. The increased legitimacy allowed changes in the backgrounds of the members of the IPO top management team (TMT) and independent members of the board of directors (BoD). We find that overall composition of both the TMT and BoD in terms of experience in the U.S. decreased and “Chineseness” increased, but at different rates. For the operational TMT members, U.S. experience decreased dramatically over time, except for the CFO who is the representative of investors within the TMT. Similarly, on the BoD, the venture capitalists continued to have high levels of US experience, while the other independent members tracked the TMT in having less US experience. In this increased legitimacy allows the acceptance of “foreign” operational management, but investors are less lenient in terms of ensuring that their “monitors,” the CFO and venture capitalists, should show evidence, i.e., U.S. experience and background, that they adhere to the investor’s values.
Topic:
Economics, International Trade and Finance, Markets, and Political Economy
Political Geography:
China

282. Responding to Uncertainty: Syndication Partner Choice by Foreign Venture Capital Firms in China.

Author:
Xiao Huang, Martin Kenney, and Donald Patton
Publication Date:
03-2015
Content Type:
Working Paper
Abstract:
Cross-border venture capital investment has grown dramatically. Drawing upon observations about the liability of foreignness, previous research has shown that foreign venture capitalists (VCs) tend to partner with local VCs in order to offset information asymmetry and the liabilities of foreignness. Much of the literature has suggested that local VCs should help reduce operational uncertainty. This paper examines syndication partner choice in China, which today is likely the most uncertain environment in which foreign VCs operate on a large scale. This provides an ideal environment for understanding partner selection under uncertainty. Our results show that foreign investors are more likely to choose Chinese investors in later rounds and in more mature portfolio firms. While foreign firms with more Chinese experience are more likely to co-invest with Chinese VCs, the older foreign VC firms are less likely to do so. Remarkably, having a Chinese office made foreign VCs less likely to coinvest. In seed-stage investments, when uncertainty is the greatest, foreign firms are least likely to co-invest with Chinese VCs, and this was not affected by the maturation of the market, while at the later stage, when uncertainty is lowest, they are most likely to co-invest.
Topic:
Economics, International Trade and Finance, Markets, and Political Economy
Political Geography:
China

283. An Assessment of the Korea-China Free Trade Agreement

Author:
Jeffrey Schott, Eujiin Jung, and Cathleen Cimino-Isaacs
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
Topic:
Economics, International Trade and Finance, Politics, and Bilateral Relations
Political Geography:
United States, China, Asia, and Korea

284. Estimates of Fundamental Equilibrium Exchange Rates, November 2015

Author:
William R. Cline
Publication Date:
11-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The latest semiannual fundamental equilibrium exchange rate (FEER) estimates find that the US dollar is now overvalued by about 10 percent, comparable to levels in 2008 through early 2010 and again in 2011. Unlike then, the current strong dollar does not reflect a weak renminbi kept undervalued by major exchange rate intervention by China. Instead, China's current account surplus has fallen sharply relative to GDP, and its recent intervention has been to prevent excessive depreciation rather than to prevent appreciation. Additionally, declines in the real effective exchange rates (REERs) for major emerging-market economies and resource-based advanced economies, driven by falling commodity prices in recent months, have strengthened the dollar. Recent increases in the REERs for the euro area and Japan have removed their modest undervaluation identified in the last FEERs estimates in May, and the Chinese renminbi remains consistent with its FEER. The dollar's rise by nearly 15 percent in real effective terms over the past two years could impose a drag of nearly one-half percent annually on US demand growth over the next five years. As the Federal Reserve moves to normalize US monetary policy, it may need to consider a gentler rise in interest rates than it might otherwise have pursued, both to temper possible further strengthening of the dollar in response to higher interest rates and to help offset the demand compression from falling net export
Topic:
Economics, International Trade and Finance, Monetary Policy, and GDP
Political Geography:
United States and China

285. Russia's Pivot to Asia: Myths and Realities

Author:
Daniele Fattibene
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Russia’s “pivot to Asia” has come to the fore in the wake of the crisis over Ukraine. Growing tensions with the West over the common neighbourhood, coupled with economic sanctions, have accelerated this trend, with China gaining in strength as both an economic and military partner to Moscow. The Kremlin’s propaganda has sought to convince the broader public that Russia’s strategies in Eastern Europe, Central Asia and the Arctic region are a complement to China’s new Silk Road Economic Belt. Nonetheless, behind the headlines huge potential problems jeopardise the emergence of a durable Sino-Russian consensus in Eurasia. Against this backdrop, the EU should opt for “strategic patience.” This would be a far more effective policy choice than finger pointing, which only deepens the mutual ideological clash between the EU and Russia.
Topic:
Diplomacy, Economics, International Trade and Finance, Bilateral Relations, and Sanctions
Political Geography:
Russia, China, and Asia
Publication Identifier:
978-88-98650-69-9
Publication Identifier Type:
ISBN

286. 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 (PIIE)
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

287. Much Ado about Nothing? The RMB's Inclusion in the SDR Basket

Author:
Hongying Wang
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
The International Monetary Fund recently concluded its quinquennial review of the composition of the Special Drawing Right (SDR), accepting the Chinese currency into the SDR basket alongside four major international currencies — the US dollar, the euro, the British pound and the Japanese yen. The Chinese government has spent a great deal of energy and political capital to achieve this outcome. This policy paper explains China’s interest in this seemingly exotic and technical pursuit, identifying the political and economic motivations underlying this initiative.
Topic:
Economics, Politics, International Monetary Fund, and Monetary Policy
Political Geography:
China

288. China Makes Strides with AIIB and a Great Wall of Sand

Author:
Bonnie S. Glaser and Jacqueline Vitello
Publication Date:
05-2015
Content Type:
Journal Article
Journal:
Comparative Connections
Institution:
Pacific Forum
Abstract:
2015 opened with high-level exchanges in preparation for the Strategic and Economic Dialogue, scheduled for early summer, and Xi Jinping’s state visit in September. Visits to China were made by Deputy Secretary of State Tony Blinken, Treasury Secretary Jacob Lew, Commerce Secretary Penny Pritzker, and Homeland Security Secretary Jeh Johnson. Chinese State Councilor Yang Jiechi met National Security Adviser Susan Rice in New York. Military exchanges included dialogues, ship visits, joint drills, and video calls. The South China Sea remained a source of friction as evidence mounted that China is building military outposts on reefs in the Spratly Islands. In response to the issuance of the revised US-Japan Defense Guidelines, China voiced concerns and called the alliance outdated. Despite US objections, a total of 57 countries signed up to be founding members of the Chinese-led Asian Infrastructure Investment Bank. China held its annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Congress, announcing an economic growth target of around 7 percent and an increase in its defense budget of 10.1 percent in 2015.
Topic:
Economics, Military Strategy, Territorial Disputes, and Infrastructure
Political Geography:
China and Asia

289. Ambitious Economic Initiatives amid Boundary Disputes

Author:
Chin-Hao Huang and Robert G. Sutter
Publication Date:
05-2015
Content Type:
Journal Article
Journal:
Comparative Connections
Institution:
Pacific Forum
Abstract:
Beijing’s recent economic initiatives with neighboring countries focus on the Asian Infrastructure Investment Bank (AIIB) and the Chinese Silk Road Fund. The Boao Forum featured a keynote speech by President Xi Jinping emphasizing the AIIB and Silk Road Fund support for infrastructure connectivity with neighbors to create a “common destiny.” Against that positive background, lower-level Chinese officials, using carefully measured language, rebuffed complaints by the Philippines, Vietnam and the US protesting China’s rapid creation and expansion of islands through massive dredging and follow-up construction of facilities. Senior leaders did respond sharply when Myanmar armed forces killed Chinese civilians in a cross-border air attack in March. In a departure from past practice, ASEAN leaders publicly registered serious concern about the land reclamation in the South China Sea. Against that positive background, Chinese leaders generally sidestepped the strong language seen at the annual Chinese People’s Congress meetings and other venues in the recent past regarding Chinese determination to protect disputed sovereignty and insure peace through strength in dealing with territorial disputes. Senior leaders did respond sharply when Myanmar armed forces killed Chinese civilians in a cross-border air attack in March as the Myanmar military suppressed resistance by an ethnic militia with close historic ties to China. Chinese leaders tended to leave publicizing South China Sea disputes to lower-level officials, using carefully measured language to rebuff complaints made by US, Philippine, and Vietnamese representatives protesting China’s rapid creation and expansion of islands through massive dredging and follow-up construction of facilities for surveillance and power projection. In a departure from past practice, ASEAN leaders on April 27 publicly registered serious concern about the land reclamation in the South China Sea.
Topic:
Economics, Military Strategy, Territorial Disputes, and Conflict
Political Geography:
China, Asia, and Myanmar

290. Looking to a Different Future

Author:
David G. Brown and Kevin Scott
Publication Date:
05-2015
Content Type:
Journal Article
Journal:
Comparative Connections
Institution:
Pacific Forum
Abstract:
Taipei’s relations with Beijing have been adrift with the Ma administration in a reactive mode. The main interactions have been on unexpected issues – China’s M503 air route and Taiwan’s effort to join the Asian Infrastructure Investment Bank (AIIB) – and results were mixed. Meanwhile all players are preparing for a different future. The KMT is trying to reform itself; new chairman Eric Chu Li-lun visited China and met General Secretary Xi Jinping in early May. Beijing is focused on working with the new KMT and on deterring the DPP from returning to office in 2016. The DPP and Chairperson Tsai Ing-wen have begun defining its policy toward Beijing before Tsai visits Washington in June.
Topic:
Diplomacy, Economics, Territorial Disputes, and Conflict
Political Geography:
China, Taiwan, and Asia