The Political Economy of US—China Trade and Investment: The Role of the China Investment Corporation

Abstract

As an emerging economy, China has relied on trade for export-led economic growth, imitating the path taken by its immediate neighbours over the past 25 years and the road taken previously by Germany and Japan. The original deal to normalize relations between the USA and China has been over-taken by the massive surge in Chinese exports to the USA, the tensions occasioned by the global financial crisis and the sense in which the USA, as a debtor country, is now reliant upon China for its long-term future. This article focuses on the China Investment Corporation (CIC) Sovereign Wealth Fund (SWF), which is a product of the original deal and is emblematic of the new status of China in the global economy. It is argued that, as one of the world's largest sovereign wealth funds, the CIC has eschewed conventional portfolio investment in developed financial markets for strategic investment in resources and jurisdictions deemed essential to China's long-term growth. As such, attempts to rein-in its ambitions through the “Santiago Principles” may be circumvented by a very different approach to investment. The CIC has the ability to re-make the rules of engagement in global financial markets, thereby redrawing the nature and scope of the long-term relationship between the two superpowers of the twenty-first century: China and the USA.