Abstract:
Sovereign Wealth Funds (SWFs) are state-led vehicles for investment of surplus revenues. Typically, these revenues come from natural resources such as oil and minerals, as well as export-currency surpluses (Cumming, et al. 2017, 4). States with these surpluses often create SWFs and then make international investments in different sectors. Scholars in International Political Economy (IPE) have focused on the potential security risks and concerns for states to accept massive investments into their domestic corporations from these foreign state-led vehicles (Cohen 2009, Drezner 2008, Weiss 2009, Monk 2009). For instance, U.S. Senator Chuck Schumer warned that with a blurring “line between finance and politics, many worry that SWFs will be used illegitimately to advance political as opposed to commercial agendas” (Monk 2009, 451). These concerns are rooted in the outward investments from foreign SWFs to recipient states. Against this background, this paper analyzes inward investments from domestic SWFs into domestic corporations.
Specifically, why do states also invest their SWFs unto domestic corporations? To answer this question, I conceptualize SWFs as modern-day privateering, and provide an empirical illustration from the Chinese Investment Corporation or CIC to demonstrate the conceptual pay-off. Privateering was common in 18th century Europe as states empowered private actors to engage in violence on their behalf, primarily on the seas (Thomson 1994). The logic of privateering was that it provided states with plausible deniability of engaging in international violence against their rivals. While SWFs are economic rather than military entities, viewing SWFs as modern-day privateers allows IR-scholars to treat state SWF investments in domestic corporations as an attempt to bypass concerns of rival states where such corporations operate through providing plausible deniability. Using the CIC is illustrative as “the world’s second largest economy and the world’s largest authoritarian regime, people have reason to be concerned that the Chinese superpower is now acting as the entrepreneur itself by making overseas investments through the CIC” (Li 2017).
The contribution of this paper is to provide a new object of study for IPE, in the utilization of SWFs by states and corporations to penetrate international markets that are reluctant about granting access. Scholarship on the developmental state has argued that Chinese outward investments are more “patient” as they seek to mix commercial opportunities through their investments (Kaplan, 2019). China and Brazil have granted finances for their State-Owned Enterprises (SOEs) allowing them to expand internationally via FDI and access assets that would help them grow and develop in a global market (Sierra 2021). This paper seeks to explain the relationship between corporations as non-state actors engaging in privateering as a form of state-led development.
Sovereign Wealth Funds (SWFs) are state-led vehicles for investment of surplus revenues. Typically, these revenues come from natural resources such as oil and minerals, as well as export-currency surpluses (Cumming, et al. 2017, 4). States with these surpluses often create SWFs and then make international investments in different sectors. Scholars in International Political Economy (IPE) have focused on the potential security risks and concerns for states to accept massive investments into their domestic corporations from these foreign state-led vehicles (Cohen 2009, Drezner 2008, Weiss 2009, Monk 2009). For instance, U.S. Senator Chuck Schumer warned that with a blurring “line between finance and politics, many worry that SWFs will be used illegitimately to advance political as opposed to commercial agendas” (Monk 2009, 451). These concerns are rooted in the outward investments from foreign SWFs to recipient states. Against this background, this paper analyzes inward investments from domestic SWFs into domestic corporations.
Specifically, why do states also invest their SWFs unto domestic corporations? To answer this question, I conceptualize SWFs as modern-day privateering, and provide an empirical illustration from the Chinese Investment Corporation or CIC to demonstrate the conceptual pay-off. Privateering was common in 18th century Europe as states empowered private actors to engage in violence on their behalf, primarily on the seas (Thomson 1994). The logic of privateering was that it provided states with plausible deniability of engaging in international violence against their rivals. While SWFs are economic rather than military entities, viewing SWFs as modern-day privateers allows IR-scholars to treat state SWF investments in domestic corporations as an attempt to bypass concerns of rival states where such corporations operate through providing plausible deniability. Using the CIC is illustrative as “the world’s second largest economy and the world’s largest authoritarian regime, people have reason to be concerned that the Chinese superpower is now acting as the entrepreneur itself by making overseas investments through the CIC” (Li 2017).
The contribution of this paper is to provide a new object of study for IPE, in the utilization of SWFs by states and corporations to penetrate international markets that are reluctant about granting access. Scholarship on the developmental state has argued that Chinese outward investments are more “patient” as they seek to mix commercial opportunities through their investments (Kaplan, 2019). China and Brazil have granted finances for their State-Owned Enterprises (SOEs) allowing them to expand internationally via FDI and access assets that would help them grow and develop in a global market (Sierra 2021). This paper seeks to explain the relationship between corporations as non-state actors engaging in privateering as a form of state-led development.