Thread by @BJMbraun

China will prohibit its firms from using variable interest entities (VIEs) in offshore jurisdictions. What, you ask.

@m_maggiori et al have done incredible work showing the giant impact of VIEs on bilateral investment positions. Quick IPE data explainer.
academic.oup.com/qje/article-ab…

FT visual on VIEs. To deal with this, Coppola et al. match "the universe of traded securities issued by firms in tax havens with their issuer’s ultimate parent" to restate bilateral investment positions.

The issue: So far, data on bilateral positions has been residency-based.

Residency-based: US Treasury International Capital (TIC) & IMF Coordinated Portfolio Investment Survey (CPIS) -> red columns

Coppola et al. use firm-level securities data to restate this as nationality-based positions -> purple

Restatements are huge for bonds & equities.

The restatements are mind-blowing for foreign holdings of Chinese securities. In 2017, the US didn't hold $154 billion in Chinese common equities (as per TIC) but *$700 billion*. Most of it via Cayman-registered VIEs.

On the other, VIE-based restatements massively reduce China's net foreign asset position: "shrinks China’s officially reported net creditor position of $2.1 trillion—one of the world’s largest—by $1.1 trillion."

To sum up, China's VIE blacklist is a very big deal.

The paper, the data, and the Sankey charts on the website are great resources for international political economists, both for research and for the classroom.
globalcapitalallocation.com/reallocation-c…

I wish we had included the Global Capital Allocation project and data in our new "Firm foundations" paper, which discusses precisely these sorts of issues with official economic data, caused by the activities of multinational corporations. END/
mpifg.de/pu/mpifg_dp/20…

This thread might interest you, @adam_tooze. Also @heimbergecon.