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.
Congressional critics of China’s investment aspirations include Democratic Senator Jack Reed.
“Many of these companies are so closely intertwined with the government of China that it is hard to see where the company stops and the country begins, and vice versa,” Reed recently told Reuters.
A series of proposed Chinese deals in the US have been blocked by regulators or attacked by local politicians, who say they are worried China could gain access to sensitive military technology or take control of valuable natural resources.
In 2005, one of China’s giant oil companies, CNOOC Ltd (中國海洋石油), dropped its bid to acquire US oil giant Unocal after a congressional investigation into the purchase, And in recent years, Chinese telecommunications giant Huawei Technologies Co (華為) has repeatedly been rebuffed from making deals in the US over national security concerns.
More recently, the Anshan Iron & Steel Group (鞍鋼), a Chinese company seeking to build a relatively unsophisticated steel rebar factory in Mississippi, had to fight fierce political opposition in the state, including fears the project would result in job losses and threaten national security.
Angered at what it says is protectionism masquerading as national security concern, Beijing has lodged sharp complaints with Washington.
The US Department of the Treasury has placed the topic on the agenda for a high-level dialogue with Chinese officials scheduled for next week in Washington.
“We strongly welcome investment from around the world, including China,” says Lael Brainard, one of the highest-ranking officials at the Treasury.
Still, some experts say anti-China sentiment is so high across the country that the US is unlikely to attract the huge investments over the next few years that the Asia Society study suggests are possible.
Daniel Rosen, co-author of the study with Thilo Hanemann, and a principal at the Rhodium Group, an economic advisory firm in New York, says if Chinese companies are turned away, it could significantly reduce investment opportunities in the US.
And, he warns, it could prompt China to retaliate against US businesses that operate in China, while also discouraging Beijing from pushing ahead with reforms that would make its business and financial markets more open and transparent.
To ensure that the US gets its share of China’s money, the study calls on Washington to send a clear, bipartisan message that Chinese investment in the US is welcome, to protect any national security review process from political interference and to work with China to enhance its own transparency when it proposes investing in the US.
Orville Schell, director of the Center on US-China Relations at the Asia Society and the person who commissioned the study, says the US must do its part to improve relations with China.
“I feel increasingly alarmed and discouraged by the willful ignorance of Americans to the competitive challenge the Chinese pose to the US, including in foreign investment,” Schell said in an interview. “China is looking for places to park its money, and it could be to our advantage. If we don’t find a way to be open to China, it’s undeniable the money will go elsewhere.”
ADDITIONAL REPORTING BY KEITH BRADSHER
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