A congressional advisory panel yesterday urged tighter screening of investment by Chinese state-owned companies in the US, saying they present unfair competition to US firms.
That was the primary recommendation of an annual report by the US-China Economic and Security Review Commission. The panel advises Congress on the national security implications of the relationship between the world’s two biggest economies.
It is proposing that Congress broaden the mandate of a committee chaired by Secretary of the Treasury Timothy Geithner that screens foreign investment proposals.
China already accuses the US of discriminating against its companies, although analysts say US firms face bigger obstructions investing in China. Chinese investment in the US is still comparatively low, but has risen sharply in recent years and is set to hit record levels this year.
“Growing Chinese investment may offer an important new source for US job creation and economic growth, but it is too early to know whether the benefits will outweigh whatever longer-term economic costs Chinese state-owned and state-directed investments may bring,” the commission said.
Its report said that despite three decades of economic reforms, state-controlled enterprises still account for as much as half of the Chinese economy, and their role has been enhanced by a US$585 billion government stimulus program during the 2008 slowdown.
The enterprises benefit from preferential financing from China’s state-dominated banks; cheap land, fuel and electricity; regulatory exemptions and tax preferences, the commission said.
The commission proposed that Congress examine Chinese investment and assess whether to widen the mandate of the Committee on Foreign Investment in the US so it would be required to screen transactions by Chinese state companies that give them a majority stake in US companies.
Currently the committee only screens investment proposals on national security grounds.
The commission also proposed prohibiting investment in a US industry by a foreign company whose government prohibits foreign investment in that same industry. That is a response to what it described as the exclusion of US firms from investing in sectors dominated by state-controlled firms in China, such as telecommunications services and oil and natural gas.
The wide-ranging report also recommended that Congress conduct an in-depth assessment into Chinese cyberespionage practices.
It said state-sponsored actors continue to exploit US government, military, industrial and non-governmental computer systems and that “Chinese exploitation capabilities are improving significantly.”
In Beijing, the Ministry of Foreign Affairs accused the commission of “indulging in Cold War mentality.”
“We hope they will stop their prejudice, respect facts and stop interfering in China’s internal affairs and hurting China-US relations,” ministry spokesman Hong Lei (洪磊) said at a regular briefing.