Sovereign Leveraged Funds and Financial Statecraft: A Comparative Analysis of China and Japan
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This dissertation research has driven by an empirical puzzle: despite most sovereign wealth funds (SWFs) are sponsored by commodity-dependent economies, why some non-commodity-dependent economies have also established SWFs? In other words, how to explain the variations in SWFs across different types of economies and levels of development? This dissertation uses comparative case study method augmented by process tracing, archival research and financial analysis to address this empirical puzzle. It bridges three different literatures: international finance and economics, international political economy, and comparative political economy. The analytical framework proposed by this dissertation is to differentiate traditional commodity-based SWFs from non-commodity-based SWFs by examining funds’ capital structure, especially liability structure. More specifically, traditional commodity-based SWFs are capitalized by unencumbered wealth from the monetization of natural resources, whereas non-commodity-based SWFs are capitalized by leveraging idle capital assets administered by the state. This dissertation uses the term “sovereign leveraged funds” (SLFs) to describe the latter. Using “leveraged” as a mark, the framework proposed in this dissertation helps to explain when, why, and how the Chinese government leveraged China’s foreign exchange reserves to establish several Chinese SLFs. It also allows the discovery of government-owned financial institution that does not have the name of a SWF but actually behaves like one. A case is Japan Bank for International Cooperation. Finally, this framework allows to explain and predict with confidence under what circumstances in what type of economies we may see new government-owned investment funds to be created.