7. Paul Taylor, “Analysis: Russia’s Phantom Pain to Hurt Ukraine in EU Pact,” Reuters, November 11, 2013.
8. Russia’s chief food inspector said that chocolates produced by Roshen, the Hershey of Ukraine, contained carcinogens. Roshen gave Russian officials safety documentation from European purchases and the United Nations’ main food agency and invited Russian inspectors to visit the Ukrainian plant to examine it, all with no response from the Russians. Judith Miller, “Chilly Neighbors,” City Journal, September 24, 2013.
9. Andrew Kramer, “Russia Steps Up Economic Pressure on Kiev,” New York Times, March 23, 2014; Michael Birnbaum, “Russia Pressures Moldova and Ukraine ahead of Signing of EU Association Agreement,” Washington Post, June 26, 2014.
10. This bullying continued when Russia told Moldovan officials that it would be a “grave mistake” to seek closer ties with Europe. Deputy Russian prime minister Dmitri O. Rogozin let fly a threat about the coming winter in telling the former Soviet republic, “We hope that you will not freeze,” a reference to the Moldovan dependence upon Russian gas for heat. See David M. Herszenhorn, “Russia Putting a Strong Arm on Neighbors,” New York Times, October 22, 2013. In the case of Moldova, a 2006 ban on wine imports (grounded in claims of subpar food safety standards) has evolved into a 2014 ban on meat and a tightening of gas pipelines. Christian Oliver, “Moldovan Winemakers Struggle as Russia Vies with EU for Influence,” Financial Times, April 8, 2014; “Russia Bans Meat Imports from Moldova,” Moscow Times, October 27, 2014.
11. John Stevens, “How Russia Hurts UK Dairy Farmers: Sanctions Banning Import of EU Products Leads to Slump in Demand,” Daily Mail, August 26, 2015.
12. Andrew E. Kramer, “Russia Burns Dutch Flowers Amid Netherlands’ Inquiry Into Malaysia Airlines Crash,” New York Times, August 17, 2015.
13. Pavel Feigenhauer, “Russia Preparing for Global Resource War,” Eurasia Daily Monitor, November 14, 2013; Andrew Witthoeft, “Russia Tries to Turn Ukraine East,” National Interest, September 9, 2013.
14. Michael Leigh, “Ukraine’s Pivot to Europe?,” Real Clear World, November 13, 2013.
15. Chisinau, “Why Has Russia Banned Moldovan Wine?”
16. According to a survey conducted by the International Foundation for Electoral Systems, 87 percent of Ukrainians are displeased with the economy and 79 percent expressed the same opinion on the political state of affairs. Thirty-seven percent of respondents indicated support for joining the EU, while 33 percent would prefer to join the Eurasian Customs Union. Low levels of confidence in major national leaders also prevail, with 69 percent of respondents expressing little or no confidence in Yanukovych. See U.S. Agency for International Development, “IFES Public Opinion in Ukraine 2013—Key Findings,” December 2013; David M. Herszenhorn, “Facing Russian Threat, Ukraine Halts Plans for Deals with EU,” New York Times, November 21, 2013; “Ukraine’s Decision on Association with the EU,” U.S. Department of State, Press Statement, November 21, 2013.
17. In December 2014, Ukrainian president Petro Poroshenko told his country that it should prepare to join the European Union by 2020. He stated, “Poland’s signature on a document ratifying the EU-Ukraine agreement marks a historic moment that means Ukraine is entering a new reality on its way towards the EU.” Ed Adamczyk, “Poroshenko: Ukraine in EU by 2020,” United Press International, December 18, 2014.
18. David Herszenhorn, “Armenia Wins Backing to Join Trade Bloc Championed by Putin,” New York Times, December 10, 2014; Benoît Vitkine, “Vladimir Putin’s Eurasian Economic Union Gets Ready to Take On the World,” Guardian, October 28, 2014.
19. At the time of the previous ban, in 2006–2007, Russia accounted for 60 percent of Moldova’s wine exports. Since then Moldovan winemakers have found new markets. On the eve of the latest embargo, only 29 percent of their exports went to Russia, reflecting the limits of this sort of geoeconomic leverage. Still, the latest ban cost Moldova $6.6 million in just a few weeks, a loss equivalent to nearly one month of total goods exported from Moldova into neighboring Russia. Razvan Hoinaru, “Analysis: Moldovan Wine. A Passage to Europe,” Cartier European, October 4, 2013, http://cartiereuropean.com/2013/10/04/moldovan-wine-a-passage-to-europe/; Tessa Dunlop, “Why Russian Wine Ban Is Putting Pressure on Moldova,” BBC News, November 21, 2013; Delphine d’Amora, “Russia Prepares Economic Retaliation over Moldova’s EU Deal,” Moscow Times, July 16, 2014; Chisinau, “Why Has Russia Banned Moldovan Wine?”
20. d’Amora, “Russia Prepares Economic Retaliations over Moldova’s EU Deal.”
21. Victor Chirila, “Moldova’s Last Chance for Reform,” European Council on Foreign Relations, December 9, 2014.
22. T. J. Chisinau, “A Geopolitical Hostage: The Path to European Integration Goes through Ukraine,” Economist, November 23, 2013.
23. Thorvaldur Gylfason, “Meeting Russia’s Challenge to EU’s Eastern Partnership,” Vox, January 25, 2014. The sentiment was common across Europe. “Brussels was asleep,” as former Swedish foreign minister Carl Bildt bemoaned, speaking of the EU’s response to Russia during the Ukraine crisis.
24. Kristi Raik, “Eastern Partnership as Differentiated Integration: The Challenges of EaP Association Agreements,” Eastern Partnership Review 15 (December 2013).
25. Ibid.
26. Benn Steil and Robert Litan, Financial Statecraft: The Role of Financial Markets in American Foreign Policy (New Haven, Conn.: Yale University Press, 2006).
27. Author interview with Douglas Rediker. Also see Heidi Crebo Rediker and Douglas Rediker, “Capital Warfare,” Wall Street Journal, March 28, 2007.
28. “The Global Financial Centres Index 15,” Long Finance, March 2014, www.longfinance.net/images/GFCI15_15March2014.pdf.
29. International Monetary Fund, “Global Financial Stability Report: Moving from Liquidity- to Growth-Driven Markets,” World Economic and Financial Surveys, April 2014, 71.
30. Susan Lund, Toos Daruvala, Richard Dobbs, Philipp Härle, Ju-Hon Kwek, and Ricardo Falcón, “Financial Globalization: Retreat or Reset?,” McKinsey Global Institute, March 2013; James Manyika et al., “Global Flows in a Digital Age: How Trade, Finance, People, and Data Connect the World Economy,” McKinsey Global Institute, April 2014.
31. China’s “going out” campaign, compelled by a mix of resource insecurity and building on China’s WTO membership, reflected a desire to make China’s SOEs into global competitors. It was launched in 2002 under Premier Jiang Zemin as part of Beijing’s tenth Five-Year Plan.
32. Lucy Hornby, Jamil Anderlini, and Guy Chazan, “China and Russia Sign $400bn Gas Deal,” Financial Times, May 21, 2014; “BP to Sign $20 Billion LNG Supply Deal with China’s CNOOC,” Reuters, June 17, 2014.
33. International Monetary Fund, Currency Composition of Official Foreign Exchange Reserves (COFER) data, Q2 2015, http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4
34. According to the IMF’s Q1 2015 COFER data, total foreign exchange holdings for emerging economies totaled $7.5 trillion (see ibid.).
35. Yung Chul Park, “Reform of the Global Regulatory System: Perspectives of East Asia’s Emerging Economies,” presentation for the World Bank conference in Seoul, June 2009, as cited in Joshua Aizenman, “Hoarding International Reserves Versus a Pigovian Tax-Cum-Subsidy Scheme: Reflections on the Deleveraging Crisis of 2008–9, and a Cost Benefit Analysis,” National Bureau of Economic Research, Working Paper No. 15484, November 2009, 5.
36. As noted in Chapter 2, SOEs account for 80 percent of China’s stock market, 62 percent of Russia’s, and 38 percent of Brazil’s. United Nations Conference on Trade and Development, World Investment Report 2013, July 2013, http://unctad.org/en/PublicationChapters/wir2013ch1_en.pdf.
37. Another oft-cited problem is that Chinese SOEs fail to comply with government orders to focus on the “strategic sectors” of aviation, power, and telecommunication. “Fixing China Inc.,” Economist, August 30, 2014.
38. And even on purely economic grounds, they do have
substantial help from the government—in China, for example, the government handed out subsidies to the auto parts industry worth $28 billion from 2001 to 2011, with another $10.9 billion promised by 2020. “Perverse Advantage,” Economist, April 27, 2013.
39. Estimates for total sovereign wealth fund (SWF) assets vary, at least partly based on whether data sources define SWFs to include various reserve asset management entities. According to estimates by Peterson Institute senior fellow Ted Truman, total SWF assets as of mid-2013 totaled “$4.2 trillion, including $3.6 trillion in foreign assets—increases of almost 40 percent from mid-2010.” A 2014 report from KMPG estimates that sovereign wealth funds control $5.9 trillion in assets. See “Sovereign Wealth Funds, 2014,” KPMG, http://www.kpmg.com/ES/es/ActualidadyNovedades/ArticulosyPublicaciones/Documents/sovereign-weath-funds-v2.pdf. On total reserves, see International Monetary Fund, “Currency Composition of Official Foreign Exchange Reserves (COFER),” data as of Q2 2015; Allie Bagnall and Edwin Truman, “Progress on Sovereign Wealth Fund Transparency and Accountability: An Updated SWF Scoreboard,” Peterson Institute for International Economics Policy Brief PB13-19, August 2013.
40. Gregory Zuckerman, Juliet Chung, and Michael Corkery, “Hedge Funds Cut Back on Fees,” Wall Street Journal, September 9, 2013. And see Hedge Fund Research Global Industry Report, 2013, https://www.hedgefundresearch.com/?fuse=products-irglo.
41. United Nations Conference on Trade and Development, World Investment Report 2013.
42. SWF Institute, “Sovereign Wealth Funds Ranking,” updated January 2013, www.swfinstitute.org/fund-rankings. Some may also classify Singapore as democratic; the 2012 Freedom House survey listed Singapore as “partly democratic.”
43. The four megabanks are ICBC, China Construction Bank, Agricultural Bank of China, and Bank of China. See Standard & Poor’s, “China’s Top 50 Banks,” September 2013, 51, http://www.standardandpoors.com/spf/swf/ereports/china/China_DimSum/document/AveDoc.pdf.
44. The first SWF was established by Kuwait in 1953; SWFs grew dramatically in the first decade of the twenty-first century. See Anna Gelpern, “Sovereignty, Accountability, and the Wealth Fund Governance Conundrum,” Asian Journal of International Law 1, no. 1 (2011): 289–320. Edwin Truman defines SWFs as “separate pools of government-owned or controlled assets that include some international assets”; see Edwin Truman, “Do Sovereign Wealth Funds Pose a Risk to the United States?,” remarks at the American Enterprise Institute, February 2008, and Edwin Truman, “Sovereign Wealth Funds: Is Asia Different?,” Peterson Institute for International Economics, Working Paper 11-12, June 2011.
45. See, e.g., Michael Hagan and Heidi Johanns, “Sovereign Wealth Funds: Risks, Rewards, Regulations and the Emerging Cross-Border Paradigm,” M&A Journal 8, no. 8 (2008), available at www.mofo.com/docs/pdf/MAJ808_SovreignWealth.pdf. They write, “Commonly referred to now as sovereign wealth funds or SWFs … these investment vehicles have risen from relatively recent obscurity to center stage in international finance, with a number of attendant legitimate concerns and some potentially thorny misconceptions.” Anna Gelpern also offers a detailed overview of popular descriptions of perceived risks surrounding SWFs in “Sovereignty, Accountability, and the Governance Conundrum.”
46. There is some evidence to suggest that political motives play a role in SWF investment. Bernstein et al. find that when politicians are involved, P/E ratios of investments are higher and that valuations fall in the year after investment, suggesting that political distortions may be the reason. See Shai Bernstein, Josh Lerner, and Antoinette Schoar, “The Investment Strategies of Sovereign Wealth Funds,” Journal of Economic Perspectives 27, no. 2 (Spring 2013): 219–238. See also Sofia Johan, April Knill, and Nathan Mauck, “Determinants of Sovereign Wealth Fund Investment in Private Equity versus Public Equity,” November 15, 2012, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2181130. Knill summarizes this work in the 2012 Sovereign Wealth Fund Annual Report as follows: “The results … in our research suggest that SWFs make investment decisions with regard to investing in private equity distinctly from other institutional investors. Though these results do not answer the question as to whether or not SWFs invest with geopolitical motives in mind, it certainly leaves room for the possibility. It would even perhaps make sense if geoeconomics played a role in investments. After all, the sovereign entities associated with these pools of money are charged with making decisions that are for the betterment of their nation’s citizens.”
47. Gelpern, “Sovereignty, Accountability, and the Governance Conundrum.”
48. Ibid.
49. Steve Johnson, “Norway’s Sovereign Wealth Fund Joins Exodus from Israel,” Financial Times, February 2, 2014.
50. Kerin Hope, “Greece Seeks Investments from Libya,” Financial Times, June 8, 2010; “Factbox—Libyan Aid and Investment Projects in Africa,” Reuters, November 24, 2010; Jeffrey Gettleman, “Libyan Oil Buys Allies for Qaddafi,” New York Times, March 15, 2011.
51. Gambia abruptly split its relations with Taiwan in late 2013; as of November 2014, formal diplomatic ties between Banjul and Beijing had not been established, but investments from China are readily found: plans for a Trans-West African highway and a hydropower dam on the Gambia River require Chinese cooperation with Gambian organizations. See Jessica Drun, “China-Taiwan Diplomatic Truce Holds despite Gambia,” Diplomat, March 29, 2014; Jamie Anderlini, “Beijing Uses Reserves Fund to Persuade Costa Rica over Taipei,” Financial Times, September 12, 2008; Graham Bowley, “Cash Helped China Win Costa Rica’s Recognition,” New York Times, September 12, 2008.
52. A Chinese state-owned construction firm built the new African Union building in Addis Ababa, a gift costing Beijing $129.5 million but boosting diplomatic recognition of the People’s Republic of China across the continent. David E. Brown, “Hidden Dragon, Crouching Lion: How China’s Advance in Africa Is Underestimated and Africa’s Potential Underappreciated,” Strategic Studies Institute, U.S. Army War College, September 17, 2012.
53. Lucy Hornby and Luc Cohen, “No Ties? No Problem as China Courts Taiwan’s Remaining Allies,” Reuters, August 6, 2013; Shannon Tiezzi, “Why Taiwan’s Allies Are Flocking to Beijing,” Diplomat, November 19, 2013; Ministry of Foreign Affairs, Republic of China (Taiwan), “Diplomatic Allies” [in Chinese], www.mofa.gov.tw/EnOfficial/Regions/AlliesIndex/?opno=f8505044-f8dd-4fc9-b5b5-0da9d549c979; Audra Ang, “China Defends Dealings with Africa,” Washington Post, October 31, 2006.
54. This correlation prompted some to speculate that Libyan SWF patronage “may be one reason why the African Union, which has emerged as a potential Libyan peace broker, refused to support coalition air strikes, even as the Arab League and Gulf Cooperation Council came out in favor.” Jon Rosen, “Whither the King of Kings?,” ISN Insights, April 2011, available at www.africanewsanalysis.com/2011/04/26/wither-the-king-of-kings-how-qaddafis-battle-for-libya-will-impact-africa-by-jon-rosen-for-isn-insights.
55. Ibid.
56. Mohsin Kahn, “The Gulf and Geoeconomics,” MENA Source, Atlantic Council, March 7, 2014, available at http://www.atlanticcouncil.org/blogs/menasource/the-gulf-and-geoeconomics.
57. Asa Fitch, “Qatar SWF Drops Flashy Deals as Foreign Policy Shifts, Report Says,” Wall Street Journal, June 16, 2014.
58. More generally, the GeoEconomica report found that “Arab SWFs have demonstrated neither their managements’ operational independence nor their economic and financial orientation, and therefore have not contributed to building confidence … in line with the Principles’ aspirations.” Sven Behrendt, “Santiago Compliance Index 2014: Assessing the Governance Arrangements and Financial Disclosure Policies of Global Sovereign Wealth Funds,” GeoEconimica, October 2014, https://www.nzsuperfund.co.nz/sites/default/files/documents-sys/SCI%202014%20October%202014_final.pdf.
59. Ashley Lenihan, “Sovereign Wealth Funds and the Acquisition of Power,” Journal of New Political Economy, April 2013.
60. As one group of authors summarizes these st
ructural differences, “Put simply, SWFs are unconstrained investors, which affects (or should affect) the nature of the risks that they are willing to bear, the time horizon of investment, the benchmarks (if any) used to evaluate performance, the demand for innovation in investment management, as well as the nature of ‘products’ offered to SWFs by investment companies.” Gordon L. Clark, Adam D. Dixon, and Ashby H. B. Monk, Sovereign Wealth Funds: Legitimacy, Governance, and Global Power (Princeton, N.J.: Princeton University Press, 2013), 9.
61. China and Russia are two such examples. India’s multibrand retail ban is another important limit on FDI, which goes well beyond the national security screening mechanisms seen in many countries, including the United States.
62. Committee on Foreign Investment in the United States, Annual Report to Congress, December 2013, 3; also see Jonathan Masters, “Foreign Investment and U.S. National Security,” Council on Foreign Relations backgrounder, September 27, 2013.
63. According to the IMF, at the end of 2011 Iran held $106 billion in official foreign reserves, mainly deposits in euros and other European currencies, enough to cover thirteen months’ worth of imports of goods and services into Iran. But these declined rapidly, such that by November 2012, Iran announced it plans to stop holding dollars and euros in reserves. Amir Paivar, “Iran Currency Crisis: Sanctions Detonate Unstable Rial,” BBC News, October 2, 2012; “Iran Plans to Phase Out Dollar, Euro in Foreign Trade,” PressTV, January 15, 2013, www.presstv.ir/detail/2013/01/14/283517/iran-to-phase-out-euro-dollar-in-trade; Thomas Erdbrink and Colum Lynch, “New Sanctions Crimp Iran’s Shipping Business as Insurers Withhold Coverage,” Washington Post, July 21, 2010.
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