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51. Chinese investment: State-owned enterprises stop globalizing, for the moment

Author:
Derek Scissors
Publication Date:
01-2019
Content Type:
Special Report
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
Chinese investment around the world fell sharply in 2018. The decline was most evident later in the year and among state-owned enterprises. These companies also engaged in fewer power construction projects. The number of countries in the Belt and Road Initiative keeps expanding, but activity levels per country are flat. One explanation for weakness in various Chinese efforts to “Go Out” is caution in drawing down foreign exchange reserves. The US has restricted Chinese investment, but it was already small in size in 2018. Serious problems remain—for example, theft and coercive transfer of technology. Firms violating American law should face sanctions, not just investment bans.
Topic:
Globalization, Foreign Direct Investment, Sanctions, Business, and Investment
Political Geography:
China, Asia, North America, and United States of America

52. Chinese Investments in the US and EU Are Declining—for Similar Reasons

Author:
Jacob Funk Kirkegaard
Publication Date:
09-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
For years China has been one of the world’s most rapidly growing sources of outward foreign direct investment. Since peaking in 2016, however, Chinese outward investments, primarily to the United States but also the European Union, have declined dramatically, especially in response to changes in China’s domestic rules on capital outflows and in the face of rising nationalism in the United States. Concerns about growing Chinese influence in other economies, the ascendant role of an authoritarian government in Beijing, and the possible security implications of Chinese dominance in the high-technology sector have put Chinese outward investments under intense international scrutiny. This Policy Brief analyzes the most recent trends in Chinese investments in the United States and the European Union and reviews recent political and regulatory changes both have adopted toward Chinese inward investments. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the United States has cracked down far harder on the company than the European Union.
Topic:
Economics, International Trade and Finance, National Security, Foreign Direct Investment, and Investment
Political Geography:
China, Europe, Asia, North America, and United States of America

53. Donald J. Trump y las Relaciones Cuba-Estados Unidos en la Encrucijada

Author:
Soraya M. Castro-Mariño, Margaret Crahan, Martin Carnoy, William M. LeoGrande, Margaret Crahan, Carlos Ciaño Zanetti, James A. Nathan, Dalia González Delgado, Jorge I. Domínguez, Manuel R. Gómez, Sunamis Fabelo Concepción, Max Paul Friedman, Raul Rodríguez Rodríguez, Víctor López Villafañe, Ruvislei González Saez, Carlos M. Gutiérrez, Robert Muse, José Gabilondo, Michael P. Hatley, William A. Messina Jr., Rafael Betancourt, Ramón Pichs Madruga, Robert L. Bach, Marta Núñez Sarmiento, and Geoff Thale
Publication Date:
01-2018
Content Type:
Special Report
Institution:
Institute for Latin American and Iberian Studies at Columbia University
Abstract:
El propósito central de esta obra radica en evaluar el deterioro que ha tenido lugar en las relaciones Cuba-Estados Unidos durante el primer periodo de mandato del presidente Donald J. Trump. El texto es resultado de la XVI Serie de Conversaciones Cuba-Estados Unidos de América, celebrada en diciembre de 2017 y patrocinada por el Centro de Investigaciones de Política Internacional adscrito al Instituto Superior de Relaciones Internacionales “Raúl Roa García” de La Habana (CIPI-ISRI). Desde diferentes ángulos se analizan el entorno internacional y el regional, así como los acontecimientos que están teniendo lugar en Cuba y en Estados Unidos, lo cual brinda múltiples explicaciones a procesos en pleno desarrollo. Sin embargo, estos contextos reflejan signos contradictorios que expresan una circunstancia histórica concreta, donde nacionalismos y populismos de extrema derecha han capitalizado el momento político internacional. En esa dirección es lógico prestarle atención a Estados Unidos y a la presidencia de Donald J. Trump, la cual más que causa es síntoma de la crisis que vive el país y refleja inmensas transformaciones y grandes desalientos basados, entre disímiles causas, en una insondable inequidad socio-económica y política. La respuesta es la agenda conocida como “America First”, que adolece de una mirada estratégica a mediano y a largo plazo, y pone en duda el papel de ese país en el Orden Mundial en el siglo XXI. El libro está destinado a audiencias interesadas en entender estas profundas problemáticas, sus causas y, particularmente, las negativas consecuencias que han tenido en el incipiente proceso hacia la normalización de relaciones con la República de Cuba, iniciado en diciembre de 2014. Al mismo tiempo, intenta explicar esta coyuntura como un paréntesis pues, más tarde que temprano, se deberá regresar a la lógica de la cooperación y la colaboración entredos países que, más allá de sus diferencias, comparten historia y un mismo entorno geográfico.
Topic:
Security, Economics, Migration, Bilateral Relations, Elections, Investment, and Donald Trump
Political Geography:
China, Cuba, Latin America, Caribbean, North America, and United States of America

54. The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism

Author:
Jang-Sup Shin
Publication Date:
07-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper explains how hedge-fund activists are exerting power over corporate resource allocation far in excess of the actual voting power of their shareholdings. The power of these “minority-shareholding corporate raiders” derives from misguided regulatory “reforms” carried out in the 1980s and 1990s in the name of “shareholder democracy”. Sanctioned and overseen by the Department of Labor (DOL) and the Securities and Exchange Commission (SEC), these reforms include the introduction of compulsory voting by institutional investors and proxyvoting rule changes that greatly facilitated hedge-fund activists’ aggregation of the proxy votes of institutional investors. In addition, the introduction of the 1996 National Securities Markets Improvement Act (NSMIA) that allowed hedge funds to draw funds from institutional investors effectively with no limit also played an important role in the rise of hedge-fund activism. The paper concludes with policy proposals to rebalance value creation and value extraction by rebuilding the engagement and proxy voting system including (1) making it mandatory for shareholders to submit justifications in shareholder proposals on value creation or capital formation of corporations concerned; (2) removing voting as a fiduciary duty of institutional investors; (3) introducing differentiated voting rights that favor long-term shareholders; and (4) making it mandatory for both shareholders and management to reveal to the public what they discussed in engagement sessions.
Topic:
Economics, Regulation, Finance, Investment, Shareholder Democracy, Hedge Funds, and Value Extraction
Political Geography:
North America and United States of America

55. The Framework for a U.S.-Japan Free Trade Agreement

Author:
Derek M. Scissors and Dan Blumenthal
Publication Date:
09-2017
Content Type:
Working Paper
Institution:
Project 2049 Institute
Abstract:
The United States and Japan can create a bilateral free trade and investment agreement that both sides will sign and ratify. While the Trans-Pacific Partnership (TPP) initially appeared to qualify as the new approach the U.S., Japan, and East Asia needed. It failed to sufficiently promote free markets and address concerns to generate enough support from traditional protectionist opponents in the United States. Nonetheless, the TPP did clarify the value of a directly relatied initiative: a U.S.-Japan bilateral agreement. This monograph serves to provide a framework for a U.S.-Japan Free Trade Agreement (FTA) and offers an outline for what such an agreement should look like in order to work both economically and in terms of domestic politics.
Topic:
Economics, Treaties and Agreements, Domestic Politics, Investment, and Free Trade
Political Geography:
Japan, Asia, North America, and United States of America

56. The Value-Extracting CEO: How Executive Stock-Based Pay Undermines Investment in Productive Capabilities

Author:
William Lazonick
Publication Date:
12-2016
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The business corporation is the central economic institution in a modern economy. A company’s senior executives, with the advice and support of the board of directors, are responsible for the allocation of corporate resources to investments in productive capabilities. Senior executives also advise the board on the extent to which, given the need to invest in productive capabilities, the company can afford to make cash distributions to shareholders. Motivating corporate resource- allocation decisions are the modes of remuneration that incentivize and reward the top executives of these companies. A sound analysis of the operation and performance of a modern economy requires an understanding of not only how much these executives are paid but also the ways in which the prevailing system of executive pay influences their decisions to allocate corporate resources. In the United States since the last half of the 1980s the overriding goal of U.S. corporations has been to “maximize shareholder value,” with corporate performance measured by a company’s “total shareholder return”: percentage stock-price appreciation plus dividend yield. Also since the 1980s, the most important components of the total compensation of senior executives have been modes of stock-based pay in the forms of stock options and stock awards. This stock-based pay is structured to incentivize executives to make corporate allocation decisions that will boost the stock prices of the companies that employ them and reward them for achieving that objective. There are three drivers of stock prices: innovation, speculation, and manipulation. The first critical question that this paper addresses is which of these drivers, individually or in combination, contribute to a company’s stock-price performance. Then we can ask the second critical question: Does executive compensation reflect the success of the company in value creation, or the power of senior executives to engage in value extraction? The “value- extracting CEO” hypothesis posits that, in the United States, a significant portion of senior executive compensation rewards them for making decisions that foment speculation and manipulate stock prices, and thereby extract value for their own personal gain. In section four of the paper, I invoke the theory of innovative enterprise to support this hypothesis and debunk the dominant ideology that companies should be run to “maximize shareholder value.” Finally, I elaborate the policy implications for controlling the power of the value-extracting CEO, including a) banning stock buybacks, b) requiring executive compensation that rewards innovation rather than speculation and manipulation, and c) placing stakeholders representing households as taxpayers, workers, and consumers on boards of directors of publicly listed companies, along with shareholders who represent households as savers. An intellectual precondition for these reforms is the rejection of the ideology that companies should be run to maximize shareholder value, which means replacing agency theory with innovation theory as a mode of analyzing how the operation of an economy, supported by the strategies and structures of the business enterprises within it, can attain the objectives of stable and equitable economic growth.
Topic:
Leadership, Investment, Corporations, Redistribution, Stock Markets, and Wage Growth
Political Geography:
North America and United States of America

57. Portfolio Diversification Between Developed And Less Developed Economies

Author:
Tirimisiyu F. Oloko
Publication Date:
04-2016
Content Type:
Working Paper
Institution:
Centre for the Study of the Economies of Africa (CSEA)
Abstract:
This study examines the hedging effectiveness of portfolio investment diversification between developed and developing economies; with focus on the Nigerian stock asset vis-à-vis the stock assets of the United States (US) and United Kingdom (UK). Its main contribution is in the analysis of optimal portfolio diversification using optimal portfolio weight (OPW) and optimal hedging ratio (OHR). Empirical findings show that the OPW and OHR are low, which indicates impressive potential gains from combining Nigerian stock assets in an investment portfolio with US and UK stock assets. In addition, exchange rate volatility is found to pose stern limitation on the potential benefits of this portfolio diversification arrangement. It is therefore recommended that the monetary authority in Nigeria should pursue policies towards reducing exchange rate volatility to the barest minimum. This will possibly attract more investors from developed economies who might be willing to combine Nigerian stock in their investment portfolio to minimize portfolio risk.
Topic:
Economics, Investment, Diversification, and Stock Markets
Political Geography:
Africa, United Kingdom, Nigeria, and United States of America

58. The Replacement of Safe Assets: Evidence from the U.S. Bond Portfolio

Author:
Carol C. Bertaut, Alexandra Tabova, and Vivian Wong
Publication Date:
11-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The expansion in financial sector "safe" assets, largely in the form of structured products from the U.S. and the Caribbean, in the lead-up to the global financial crisis has by now been fairly well documented. Using a unique dataset derived from security-level data on U.S. portfolio holdings of foreign securities, we show that since the crisis, it is mostly the foreign financial sector that appears to have met U.S. demand for safe and liquid investment assets by expanding its supply of debt securities. We also find a strong negative correlation between the foreign share of the U.S. financial bond portfolio and measures of U.S. safe assets availability: providing evidence on the importance of foreign-issued financial sector debt as a substitute when U.S. issued "safe" assets are scarce. Furthermore, although U.S. investors continue to tap foreign financial markets for "safe" assets, we show that the type of foreign financial debt that fills this portfolio niche post-crisis is quite different than pre-crisis. Post-crisis, we find that U.S. investors have replaced offshore-issued structured securities with high-grade U.S. dollar-denominated financial debt issued from a small group of OECD countries (most notably Australia and Canada). Lastly, these developments have led to a decline in home bias in the U.S. financial bond portfolio that we are able to document for the first time.
Topic:
Foreign Exchange, Financial Crisis, Investment, Fiscal Policy, and Bonds
Political Geography:
Caribbean, North America, and United States of America

59. On Returns Differentials

Author:
Stephanie E. Curcuru, Charles Thomas, and Francis E. Warnock
Publication Date:
04-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Estimates of U.S. returns differentials have ranged from exorbitant to quite small, in part because of their volatility coupled with the relatively short time series available. We shed light on underlying drivers of returns differentials by presenting a number of decompositions: a by-asset-class decomposition into yields and capital gains, the Gourinchas and Rey (2007a) composition and return effects, and further decompositions of capital gains that focus on exchange rate effects. While each decomposition informs thinking about returns differentials, one constant is evident throughout: to date the existing differential favoring the U.S. has owed primarily to one factor, a differential in direct investment yields. We discuss how our analysis informs the income puzzle (of positive net income flows to the U.S. even as its net international investment position is negative and substantial) and the position puzzle (of a sizeable gap between the reported U.S. net international position and cumulated current account deficits), provide an initial assessment of the literature on the dynamics of returns differentials, and present a framework to guide a forward-looking view of how returns differentials might evolve in the future.
Topic:
Foreign Direct Investment, Financial Markets, Investment, and Stock Markets
Political Geography:
North America and United States of America

60. "Fool Me Once . . . " Did U.S. Investors Play it Safer in the European Debt Crisis?

Author:
Carol C. Bertaut, Fang Cai, and Nyssa Kim
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper examines U.S. investors' portfolio investment patterns since the global financial crisis, particularly since the European debt crisis that began in late 2009. The global financial crisis during 2007-2009 was accompanied by an increase in U.S. investors' home bias. U.S. investors experienced significant valuation losses and pulled back notably from their foreign investment, especially from foreign debt. In contrast, while they have also incurred sizable losses on cross-border investment during the European debt crisis, U.S. investors so far have not shown any increase in home bias, and they have not even pulled back from their long-term investments in Europe. Holdings data show that U.S. investors have continued to invest in European securities, particularly in government debt, but have made little new investment in the financial sector. This continued interest in European securities could owe to the fact that most of U.S. holdings of European debt have been concentrated in dollar-denominated debt issued by core euro area countries and the United Kingdom, which are deemed relatively safe. Changes in the composition of holdings over the past couple years suggest that U.S. investors have behaved in a way that reflects their diversity and differing objectives: while investors reached for higher yields in government debt, there also appears to be some shift toward safer investment in the financial sector.
Topic:
Debt, Financial Crisis, Investment, Securities, and Stock Markets
Political Geography:
Europe, North America, and United States of America