Untapped Instrument. Sovereign Wealth Funds and Chinese Policy Toward the Central and Eastern European Countries

Abstract

This chapter aims at looking at the role of sovereign wealth funds (SWFs) in China’s policy toward Central and Eastern European (CEE) countries in the 21st century, especially since the enlargement of the European Union (EU) in 2004. During this time, we could observe an increase of Chinese interest in the region resulting in growing trade, investments and number of contacts on all levels. China has used a wide array of different instruments to achieve its goals in the region: from a big political project such as the “16 1 format” to an unprecedented frequency of contacts between Chinese provinces and their European counterparts. Despite a visible growth of economic ties, Beijing presented a very limited will to use investments as a political instrument. Even if Chinese investments in CEE are booming, they are much less politically biased than those in other developing countries, like African ones. The Chinese investment pattern is also very different than in the old EU member states (EU-15). Their foreign direct investment (FDI) are more greenfield than merger and acquisition (M&A)-oriented and also strategic alliances have been much rarer in CEE than in the EU-15. Jacoby (2014) claims that this may prove that the Chinese in CEE are motivated more often by market access and less often by gaining access to technology and management practices, both of which are more available through M&A and/or strategic alliances with local firms. Such an approach of the Chinese could explain the very limited engagement of SWFs, which obviously are not interested in greenfield investments. This, however, raises the question about the future role of the Chinese SWFs in CEE? Are they going to increase their engagement in the region together with maturing economic ties between China and the region? Could they serve as a convenient instrument of political pressure on CEE countries?

Keywords: Sovereign Wealth Funds, China, CEE, CIC

JEL Classification: F5