For three decades, wealthy nations have invested hundreds of billions of US dollars in China, helping drive one of the most remarkable economic booms in history.
Now, China is poised to return the investment favor. The question is whether the US will be willing and able to fully participate, according to a new study to be released today.
Flush with capital from its enormous trade surpluses and armed with the world’s largest foreign exchange reserves, China has begun spreading its newfound riches to every corner of the world — whether copper mines in Africa, iron ore facilities in Australia or even a gas shale project in the heart of Texas.
The study, commissioned by the Asia Society in New York and the Woodrow Wilson Center for International Scholars in Washington, forecasts that over the next decade China could invest as much as US$2 trillion in overseas companies, plants or property, money that could help reinvigorate growth in the US and Europe.
However, the report, to be released at a Washington news conference that US Secretary of Commerce Gary Locke plans to attend, also warns that the US risks missing out on a large share of the Chinese investment boom because of politics, a growing rivalry between the two nations and deep-seated perceptions that Chinese investments are unwelcome in the US.
“If political interference is not tempered,” the study warns, some of the benefits of Chinese investment — “such as job creation, consumer welfare and even contributions to US infrastructure renewal — risk being diverted to our competitors.”
While Wall Street banks have lobbied for more Chinese investments in the US, hoping that will bring bigger deals for the banks, Washington has remained wary — even though the Obama administration says it welcomes Chinese money.
However, anti-China rhetoric is hot in Washington and among many state and local officials. One frequently cited worry is that Chinese companies, many of them owned partly or entirely by the government, will use their purchases to gain military secrets. Another concern is that Chinese companies will buy US companies with manufacturing operations in the US, close those factories and move production to China.
China, of course, is already a force in global markets. Over the last few years, it has made multibillion-dollar loans to developing nations and let its state-owned companies acquire minority stakes in global powerhouses like Rio Tinto, Morgan Stanley and the Blackstone Group.
China is also a major player in the global debt markets, holding about US$1.6 trillion in US Treasury bonds, an investment that helps keep US interest rates low and finances the US’ enormous debt.
However, China is still a relatively small player in overseas direct investments, which include purchases of large, voting stakes in foreign companies and plants. That also includes investments in new construction projects on previously undeveloped land — so-called greenfield facilities.
Last year, China’s overseas direct investments amounted to about US$59 billion. By comparison, the US figure was over US$300 billion.
With Beijing pushing its big companies to go overseas and invest in resources and technology, China’s investments could soon reach US$100 billion to US$200 billion a year, according to the Asia Society study.
The potential problem for Beijing is that Chinese companies are not always welcomed overseas — not only because China wields enormous economic clout, but because state-owned giants are believed to be subsidized by the state and possibly working in the interest of the government.