CPSA/ISA-Canada section on International Relations

C10(b) - Building Barricades: Host Country’s Regulatory Innovation in Response to Growing Investment from State-Owned Enterprises

Date: Jun 3 | Time: 10:30am to 12:00pm | Location:

Chair/Président/Présidente : Anton Malkin (The Centre for International Governance Innovation)

Discussant/Commentateur/Commentatrice : Anastasia Ufimtseva (Simon Fraser University)

Discussant/Commentateur/Commentatrice : Rachel Ziemba (Center for a New American Security; Ziemba Insights)

Session Abstract: This interdisciplinary panel seeks to produce a new wave of scholarship to analyze regulatory innovation adapted by host countries in response to a rise of Foreign Direct Investment (FDI) from state-owned enterprises (SOEs). The World Investment Report, released by the UNCTAD (2018), indicates that Foreign Direct Investment (FDI) protectionism is on the rise in investment-recipient countries. To understand the changing trends in the regulation this panel analyzes the causes that lead to a rise in investment protectionism. The panel will do so by providing a comparative analysis of FDI regulations across different advanced industrialized countries, including Canada and the United States. The panel draws on recent literature on regulatory evolution in response to FDI from emerging economies (Cuervo-Cazurra 2018) and a growing body of work on new institutionalist theory (Jackson and Deeg 2008; Peng, Wang, Jiang 2008). In doing so, the examines regulatory strategies selected by investment-recipient countries to identify broader patterns and trends, such as ‘policy spillovers’ across regional borders. Geographically, the panellists strive to provide a balance between globally applicable theory and country-based case studies.

Venturing into Great Power Competition: Chinese Venture Capital in Israel and the Sino-US Technological Proxy War.: Anton Malkin (The Centre for International Governance Innovation)
Abstract: This paper examines Sino-US competition through the lens of Chinese venture capital (VC) investments in Israel and the US resistance to the deepening of Sino-Israeli commercial relations. Chinese FDI in Israel has picked up in the last half-decade. A significant share of Chinese FDI in Israel in the last half-decade has been in VC, flowing into Israel’s advanced technology sectors. This paper analyzes data on Chinese and American VC investments in Israel. While much of the recent uptick in investment has come from private VC firms, Washington has threatened to reduce intelligence sharing with Israel if the latter continues to take money from China in sensitive technology sectors. This illustrates the extent to which private multinational corporation (MNC) activity, in the context of the US-China technological competition and confrontation of the present day, is difficult to divorce from national security issues. It is underscored by the growing debate in Israel—a long-time US ally—on the trade-offs between attracting Chinese capital and risking Israel’s security vis-à-vis their impact on the China-US security relationship. This paper will analyze these debates and Israel’s recent legislative changes on FDI, which impact Chinese investment in the context of the US-china tech war.

Assessing the Impact of U.S. National Security Screening : Rachel Ziemba (Center for a New American Security; Ziemba Insights)
Abstract: The United States has long had one of the most extensive security screening of foreign direct investment (FDI) among developed economies. Legislation approved in 2018 extended the powers and scope of the Committee on Foreign Investment in the U.S. (CFIUS), the inter-agency committee that assesses inward investment on security grounds. New powers included the ability to retroactively ban investments and expanded the scope by sector and size of transactions and have been targeted at Chinese government-linked entities. This paper assesses the impact of these reforms, and places these tools within the coincident more muscular use of economic statecraft including the broader use of tariffs, financial sanctions and export controls by the U.S. administration and legislature. Initial data suggests these changes contributed to a drop in FDI, especially from state-owned enterprises, exacerbated by uncertainty surrounding the rules of investment and trade. The paper also looks at how shared responsibility for the deepening of national security screening between the administration and Congress may impact implementation and the prospect of future reforms.

Global Trends in Newly Adopted Regulations of Foreign Direct Investment Targeting State-Owned Enterprises: Anastasia Ufimtseva (Simon Fraser University), Jing Li (Simon Fraser University), Daniel Shapiro (Simon Fraser University)
Abstract: The World Investment Report, released by UNCTAD (2018), indicates that Foreign Direct Investment (FDI) protectionism is on the rise in investment-recipient countries. Over the past decade, multiple investment-recipient countries tightened their investment screening regulations to filter out Foreign Direct Investment (FDI) threatening national security. In this paper, we explore how advanced-industrialized countries adopted their investment screening mechanisms and analyze what caused this shift toward protectionism. To answer these questions, our paper develops a theoretical model to explain regulatory responses of host states to the inflow of FDI, with a specific focus on FDI from state-owned enterprises (SOEs). This model accounts for recent regulatory adaptation in Australia, Canada, the United States, and Europe. In doing so, it uses case studies and process-tracing to examine responses of host societies to the inflow of FDI by Chinese SOEs. Building on new institutionalist theory, we propose that regulatory responses differ on the basis of interstate alliances and stakeholder interests at home.