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Fragmented decision-making processes in a global economy : sovereign wealth funds and policy coalitions in China Massot, Pascale

Abstract

As surplus economies started to amass foreign exchange reserves in the past decades, sometimes up to staggering levels, they increasingly started to look for ways to diversify and increase their returns. One type of tool that was devised for this purpose was the creation of special state investment mechanisms like Sovereign Wealth Funds (SWFs). The use of these state tools is intensifying; indeed, most SWFs were created in the past 10 years or so. SWFs offer us a unique opportunity to observe the transforming manifestations of the role of the state in the global economy. This is crucially relevant in the wake of the 2008 global financial crisis. One of the most interesting empirical cases in this regard is China. Not only is China at the nexus of fundamental realignments in the global economic balance of power, it is also a strong state which owns and operates multiple SWFs. My research question stems from the observable divergence in SWFs’ behavior, more precisely, I ask: why are Chinese SWFs not behaving in the same way across the board? Through a study of four SWFs, the National Social Security Fund, the State Administration of Foreign Exchange Investment Company, the China Investment Corporation and the China-Africa Development Fund, a foray into the Chinese financial/economic decision-making patterns will be made. It will be shown that the four Chinese SWFs examined here exhibit substantially dissimilar behavior. The emerging causal narrative results from the fragmentation of decision-making structures in China, and from the widening of the policy-relevant pool of actors who have a say in the management of the Chinese foreign investments. This paper argues that specific alignments and realignments of policy coalitions are the main determinants of the funds’ behavior. This conclusion sheds light on decision-making processes and power structures in China, and attempts to provide us with a novel way to understand China’s ever changing governance landscape and relation to the world. It can also suggest some potential avenues for looking at the various incarnations that SWFs can take around the world.

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