The United States is so far lacking a strategy for managing future Chinese investment. With Beijing pushing for more access to its high tech sector, it needs one.
The United States and China have long lobbed verbal grenades across the Pacific, each blaming the other for global imbalances due to currency manipulation or fiscal irresponsibility. But a new challenge to Sino-US relations is emerging, one that will brush aside the bones of contention that now occupy policymakers – Chinese investment in the United States.
So far, Washington hasn’t unveiled a clear strategy to address this impending source of friction. It needs one.
With $3 trillion in foreign currency reserves, China needs to invest its money abroad. Its domestic, export-led economy is no place to absorb all the capital. In addition, inflation is stubbornly high and rising labour costs have begun to push production elsewhere, threatening China’s solid growth rates. Meanwhile, limited investment options have led to an alarming asset bubble.
Beijing must tread a fine line in trying to keep its economy growing at a sustainable pace while developing a model for growth that no longer depends on cheap labor and the abundant use of natural resources. That means restructuring the Chinese growth model by moving its manufacturing sector up the value chain. Greater investment in the world’s advanced, industrialized countries would spur this effort, and that’s exactly what the Chinese government is encouraging companies to do. Highest on the list of investment targets is the United States.
Beijing’s 2010 Report on China’s Economic and Social Development Plan and its 12th Five-Year Plan offer a glimpse of this strategy. The first document showed Chinese non-financial foreign direct investment (FDI) reached $59 billion in 2010, up 36.3 percent from just a year before. The second document unveiled a policy focus on boosting innovation in strategic emerging industries and upgrading traditional industries. Both will require investment in Western leading-edge, high tech sectors. A report by the Asia Society predicts Chinese investment abroad will soar to $1 trillion by 2020, with much of it going to the United States. In another sign of this trend, a recent survey by the China Council for the Promotion of International Trade (CCPIT) pointed to the United States as the most attractive overseas investment destination for Chinese companies.
It can come as no surprise, then, that at the recent US-China Security and Economic Dialogue – the highest-level bilateral forum to discuss Sino-American relations – the value of the renminbi was overshadowed by an issue higher on the Chinese agenda: a push for more US market access, particularly in the high tech sector. As China’s Vice Finance Minister Zhu Guangyaoput it: ‘We hope that the US will provide a healthy legal and institutional setting for investment by Chinese companies. In particular, we hope that the US will not discriminate against state-owned companies.’
Easier said than done. The United States, citing national security concerns, has shown a queasiness toward Chinese investment that has doomed past corporate acquisitions. Oil company CNOOC’s efforts to buy Unocal, and telecoms giant Huawei’s attempt to own 3Com and 3Leaf, collapsed in the face of vociferous US opposition to placing valuable resources and technologies in Chinese hands. This led to more verbal grenades: The US Congress raised red flags about other, similar investment deals, and Beijing criticized discriminatory and opaque investment policies.
These disputes will only heat up as the US financial sector recovers and expands its credit base, and more Chinese cash from more technologically adept Chinese companies floods into the United States in search of higher corporate profits and access to technology. US natural resources, human resources, and sales will become the targets of increasing competition from Beijing. The US business community may well demand action from Washington to protect its interests. At the same time, local US authorities, who until now have welcomed investment in a desperate struggle for new sources of capital and jobs, may increasingly confront federal objections to the Chinese moves. All this would put real pressure on bilateral relations.
Washington needs to develop a strategic blueprint to avoid a rupture in ties and guide Chinese FDI toward acceptable sectors. Such a policy would clarify any differences between investment from state-owned enterprises with direct government links and that from private companies. It would balance local government needs for investment with federal government regulation and strategic considerations. It would identify opportunities and industries for joint technological development. And it would provide incentives to attract Chinese investment to those sectors in which it is wanted.
The right policy would further integrate China into the global economy and provide US jobs without threatening national security—a win-win situation that would also boost Sino-American collaboration.
Ting Xu is a senior project manager at the Washington, DC-based Bertelsmann Foundation.
Photo Credit: White House
Reddit
Digg
StumbleUpon
Delicious
Technorati
Yahoo
Google
Plurk
The Bogan
“Asian bloggers can add more.”
ozivan, whatchoo talkn about meng? you are most definitely a Chinese/ccp flavored blogger. it’s so obvious.
ozivan
@The Bogan. Are you anti-china blogger then ?
Bruce Chung
China has already received far too many economic benefits, high-tech and scientific know-how/competence from western nations. They’re not an ally, remember? Time to slap their products with enormous tariffs.
Bruce Chung
U.S.A., don’t be insane, don’t do it!
The Capitalists (U.S.A.) will sell us the rope (sensitive high-tech) with which we will hang them.
FreedomMan
Dealing with any Confucian society is a serious challenge. Confucianism makes people extremely status conscious. Being first in anything and everything is of utmost importance, and it doesn’t matter how you become number one. It doesn’t matter if you have to lie, cheat, and steal up and down and left and right. It doesn’t even matter if your endeavors are for good or ill. All that matters is being widely praised and extolled.
The upshot to this is that Confucianists consider anyone or any country who is a leader in something to be a target to be taken down. Most Confucianists are shaken to their foundations by other people’s excellence, which largely explains why there is such a preoccupation with the Jews throughout East Asia. Say what you will about the Israeli-Palestinian issue, there is virtually zero support for the Jews in East Asia.
I was recently reminded of the Confucian issue when two reports came across my desk about Pohang Iron And Steel Co. Ltd. (POSCO) and Samsung Electronics, both from South Korea. The Koreans recently translated “histories” of these two companies into English. What shocked me in these reports is that the Koreans are flat out admitting that these two companies conducted far-reaching industrial espionage against “advanced companies” in the 1980s. POSCO spied on Japanese steelmakers, and Samsun Electronics spied on Micron Semiconductor. They planted “overseas interns” at these companies. These interns “took pictures of facilities” and “copied confidential data”, and this proved important in POSCO’s and Samsung’s advancement. The reports justified this espionage in cases where the “advanced companies” “didn’t actively cooperate.” So, cooperation is basically you turning over your crown jewels and the Koreans doing whatever they want with them without reciprocating in any way.
Who knows what other espionage the Koreans have been conducting since the 1980s.
I only raise the Korean case because I know very much about it and it applies very much to China. In short, nearly everything in Korea and the rest of Northeast Asia is a one-way street.
If Americans or others had done these things to the Koreans, we would hear about it loud and clear, and we would never hear the end of it. Of course, the Koreans are very concerned about espionage directed against them, as made clear in a recent report by their National Intelligence Service. The Ministry of Government Legislation (MOLEG) website of the Korean government provides all manner of information for students who want to pursue higher education in South Korea, but it also makes clear that students cannot get jobs after graduation in areas where there is “national strategic information”.
Now, the Chinese come calling. We already know that they are lying, cheating, and steeling up and down and left and right, and like others, they will have their justifications for it, if ever called to account. They can always dredge up some historical incident, whether real, exaggerated, or utterly fabricated.
Indeed, what are we to think of a country that formally teaches its children that the U.S. never landed on the moon and that the U.S. started the Korean War by invading North Korea? What are we supposed to think of a country that so aggressively conducts cyber warfare, even going so far as to plant viruses that could shut down the entire U.S. power grid whenever they want? What are we to think when they insult our political leaders in Washington by jingoistic musical entertainment? And then there is the issue of that mass murderer whose superhuman portrait still hangs over Tienamman Square. What’s with the unbridled mercanilism? The economic thinking seems no more sophisticated than “Ooga booga! Export good! Import bad!” The entire culture wreaks of run-amok status conscousness, which is to say materialism. If we don’t stand up to these people, then the whole world really could fall into a new dark age.
yang zi
Confucian has nothing to with anything. don’t be so shallow. America did its share of “stealing” in early 1900s.
Sinodefender
Insulting Confucianism? Are you one of those people who actually think Confucius promotes abortions and hates women… Confucianism fosters harmony between ruler and subject going both ways how is this wrong? Western values are worse compared to Confucianism promoting violence and immoral ways. Also should I say the western world copied Chinese inventions…
a_canadian_observer
@Sinodefender: Insulting? No. Criticizing? Yes. Because confician system is not perfect as you guys have been boasting about. just to name a few:
- Allow 1 men to have multiple wives but women have to have only 1 husband,
- Allow brutal kings/emperor to be considered as “son of heaven”,
- Allow men to buy women as concubines.
Need I spell out more?
ozivan
@FreedomMan. Congratulations FreedomMan. You have proved yourself to be a true western style democrat who believes in the many Freedoms available in our western democratic societies and practised them without shame. The Freedom to Free Speech (including Condemnation ..!!) …so this time you chose China & Korea to be condemned. Everything you see in Koreans & Chinese or anyone who lives by confucian values are evil.
Western & Judeo-Christian values seem to you to be the only superior values system in the world.
1. When East Asians desire respect, you name call them “status conscious”;…but when Westerners want the same…you sweetly called it your “rights”
2. When East Asians achieved commendable things, you alleged they cheat, lie & stole to get them;…but when Westerners do the same…it’s “talent” and “invention”
3. When East Asians leaders rise, you blame it surely on jealousies that they will be brought down by their fellow Asians;….but when Western leaders are brought down…you proclaim them as “democractic elections”
Asian bloggers can add more.
How blinkered can you be in your views..!!?
On copying. Most countries copied or stole secrets from each other at various times, to various degrees and extent.
1. The Americans copied and stole from the British during the industrial revolution.
2. After the defeat of Germany & Japan ,the US stole secrets on rocket science, military equipment, etc etc from captured German scientists. The US seized military drawings from the Japanese and shipped state of the art factories from Japan back to US.
3. After the war, the Japanese copied American’s innovations, improved and miniaturised them.
4. The Germans copied, made them durable, last a lifetime and cheap to maintain.
5. The Chinese copied, mass produced them at cheap prices.
6. The Russians stole the secrets of the atomic bomb and then threaten US with it.
7. The Koreans followed by providing products as an alternative to Japanese products.
8. During the early years of China’s economic development, many Western industrialists who visited China to source for products copied Chinese ingenuities, went home to register international patents as their own when the Chinese were not commercially aware of and savvy with the usefulness of patents.
Bloggers can add more.
Industrial espionage is a common affliction among all countries with large industrial base.
Leonard R.
I think Chinese leaders should thump their chests and threaten the US on this one.
It’s important.
If that doesn’t work, they can just whine like they always do. Maybe they can send Lang Lang to the USA give a free concert and insult everyone again.
camio
How did Lang Lang insult Americans?