Tuesday , August 20 2019
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State-owned investment vehicles

Summary:
If I understand the current concerns around Huawei correctly, it isn't so much that there's worry that their current kit is set up for spying, but that it would be too easy for the Chinese government to direct it, down the line, to surreptitiously do naughty things via updates. Everything's a bit opaque in China; the government has ownership stakes all over the place, and ample regulatory/directive ability. Everything in China operates under the shadow of the state. That shadow matters.  The New Zealand state carries its own smaller shadow. When you're in the Wellington circuit, you start hearing just crazy stories about what regulated entities do, not because they're compelled to do it, but because they think it will curry favour with the government's or regulator's

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If I understand the current concerns around Huawei correctly, it isn't so much that there's worry that their current kit is set up for spying, but that it would be too easy for the Chinese government to direct it, down the line, to surreptitiously do naughty things via updates. Everything's a bit opaque in China; the government has ownership stakes all over the place, and ample regulatory/directive ability. Everything in China operates under the shadow of the state. That shadow matters. 

The New Zealand state carries its own smaller shadow. When you're in the Wellington circuit, you start hearing just crazy stories about what regulated entities do, not because they're compelled to do it, but because they think it will curry favour with the government's or regulator's flavour-of-the-month political preferences and make adverse regulatory outcomes less likely. Who knows whether the activity that happens under that shadow of regulation actually affects the regulator's behaviour in any case. But weird stuff happens in that shadow. And you'll just have to take my word for it. 

Anyway, it makes me nervous when state-owned investment entities like the SuperFund and ACC, and Kiwisaver funds that operate under the shadow, start putting weight behind any current government's policy pushes - whether it's the Christchurch Call or anything else.

And I start wondering whether publicly listed companies should be thinking about ways of defending other investors by preventing sovereign wealth funds and public pension funds from picking up too great a total ownership stake. It wouldn't be a cheap call to make - those things manage huge amounts of investment. But if sovereign wealth funds become increasingly activist investors with strong non-return-related preferences, and with an implicit potential regulatory threat behind them where they're aligned with their government-owner's current political preferences - Huawei is nearer than you might like.

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