The Next Big Threat to US-China Ties
Image Credit: White House

The Next Big Threat to US-China Ties

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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.

Comments
29
webster0105
September 7, 2012 at 08:38

quid pro quo
Just go for the regulated access and force them to form partnerships :)
On this one issue, I do begrudge them a little. If they want more access they have to give more access as well. A case of "Calling the kettle black" as it were…

a_canadian_observer
July 22, 2011 at 02:21

@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?

Sinodefender
July 16, 2011 at 08:07

Is it wrong to be communist? I am not a communist I am a citizen of the United States please leave insults out of intellectual debates…

Sinodefender
July 16, 2011 at 08:06

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…

ozivan
July 16, 2011 at 00:19

@The Bogan. Are you anti-china blogger then ?

The Bogan
July 15, 2011 at 22:21

“Asian bloggers can add more.”

ozivan, whatchoo talkn about meng? you are most definitely a Chinese/ccp flavored blogger. it’s so obvious.

JB
July 15, 2011 at 17:43

@Sinodefender,
Just a keyboard stroke, my poor commie!

ozivan
July 15, 2011 at 17:38

@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.

ozivan
July 15, 2011 at 16:29

@Brau. Now I understand why one could sense that the people in China doesn’t trust the words of Westerners when conversing with them. They sense in their hearts that you’re not sincere and meant well to them, many a Westerner like you wants the Chinese NOT to be progressive, modern, wealthy, healthy and prosperous..unless they are compliant and obedient to western values.

Now your true colors are showing. It’s not easy to hide your true motives…isn’t it, Brau ?

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