|
The
U.S./China Relationship
Brian
Trumbore
President/Editor, StocksandNews.com
As I was catching up on some reading
I came across comments on doing business with China
from the Gramercy Round, which meets from time to
time at the Gramercy Tavern in New York to discuss
issues of the day.
Needless
to say this is an ongoing hot topic and in light of
the shift in power in Washington is likely to be even
more of one in the months and years ahead.
Following
are a few excerpts from the event, as reported in
The National Interest, Sept./Oct. 2006.
---
Harry
Harding, director, Eurasia Group
"Increasingly,
the Chinese want to capture a greater portion of the
'value chain' in the production of goods, no longer
concentrating on providing low-cost labor to assemble
products.
"China
seems largely intent on what some describe as a mercantilist,
as opposed to a purely market-oriented, strategy.
That is, China is not willing to rely simply on the
international marketplace to gain indirect access
to the resources it wishes to import, but prefers
to gain direct access by acquiring those materials
at the source.
"Moreover,
since the Chinese government is the majority owner
of many firms, questions are raised not only about
unfair trading practices (for example, if the state
provides below-market financing) but the interrelationship
between Chinese business interests and foreign policy
objectives. There are reports, for example, that the
Australian government has become far more guarded
about supporting the U.S. commitment to the security
of Taiwan as a result of growing Chinese investment
in that country. Conversely, there is also the possibility
that the Chinese government will be more supportive
of the host governments of the countries in which
it has key investments or contracts, regardless of
those government's international orientations or domestic
human rights records; China's energy relationships
with countries like Iran, Burma and Sudan pose these
kinds of concerns?.
"China
is now in a position to make major investments in
the United States itself. Two kinds of investment
may be of particular concern: strategic and iconic.
Strategic investments are those by which China seeks
to acquire, and thereby to control, critically important
resources. Oil is one obvious example, but I suspect
that Chinese attempts to acquire American high-technology
firms will be the more common way in which this issue
gets raised. Iconic investments would involve the
acquisition of companies or other assets of particular
symbolic importance to the United States: imagine
a Chinese attempt to buy a well-known American automobile
or equipment manufacturer, a major shopping center
or resort, or an American film studio.
"The
efforts of Japanese firms a decade or so ago to make
similar strategic and iconic investments in the United
States were controversial enough - and Japan was a
fellow democracy and strategic ally of the United
States."
Ian
Bremmer, president, Eurasia Group
"(Steady),
sustainable Chinese growth is in America's interest.
It is crucial for the health of the global economy
and for the future of a growing list of U.S. companies.
China's economic expansion requires that its international
investment strategy succeed.
"Will
U.S. policymakers see past protectionist politics
if Hugo Chavez decides to sell a Chinese state-owned
company a major stake in Citgo? If a Chinese automaker
bids for a stake in a struggling General Motors? Or
a U.S. airline? Beijing (and many in the United States)
is waiting for Washington to define which assets the
U.S. government considers 'critical infrastructure.'
"The
United States needs a balanced approach. Washington
is wise to insist that China develop a political system
supportive of long-term stability. But China must
know where its investment policy will bring it into
conflict with the United States - and where it will
not?.
"China's
state-owned companies?are generally intent only on
locking up deals, developing strong relations with
local elites and supplying these elites with what
they want - often at the expense of local stability.
Because Chinese companies neglect the need to establish
footholds in local communities, anti-Chinese sentiment
in many of these states is growing.
"The
same is true for the Chinese government. When the
tsunami devastated Indonesia and other Southeast Asian
states in 2004, the United States and Asian/Pacific
democracies (Australia, Japan and India) were quick
to respond with badly needed help for local populations.
China was nowhere to be found. But the Chinese were
not invited to participate. They should have been?.
"Coordination,
not competition, can help both (the U.S. and China)
realize their shared goal of better relations. And
a clearer definition from Washington of where, and
under what circumstances, U.S. and Chinese goals conflict
can help Beijing grow its economy in ways that serve
the long-term interests of both."
David
Lipton, managing director, Global Country Risk Management
at Citigroup
"When
discussing the economics of foreign investment, we
need to be clear in the terminology that we use. The
Chinese are not engaged in much foreign direct investment
in the sense of building new factories or bringing
in fresh investment; they are engaged in acquisition
of existing assets, so the impact on jobs and output
is less than Greenfield FDI.
"The
CFIUS [Committee on Foreign Investment in the United
States] process has served well in identifying the
acquisition of U.S. companies that threaten our national
security interests, while avoiding undesirable obstacles
to useful investments. In thinking through the challenge
of dealing with prospective Chinese investments, it
might be useful to distinguish three categories of
targets: firms that have control over critical parts
of the infrastructure, assets that secure access to
energy and other raw materials, and firms that enhance
Chinese manufacturing capabilities. In the first,
there may be legitimate objects of concern for CFIUS.
In the second, China is unlikely to acquire enough
to materially affect energy market pricing and supply,
and for now there is less rationale for concern over
national security. In the third, acquisitions are
likely to be mainly commercial. [There is a need to
reform the CFIUS process.] We have never defined what
constitutes national security - and to some extent,
that lack of definition has served us well, giving
us a certain degree of flexibility?.
"The
whole debate about China reflects a larger unease
with globalization. The economies of Europe and Japan
have not been growing satisfactorily and the U.S.
economy has not been generating satisfactory job growth.
[Ed. some would argue with that.] The economic rise
of China and India has led to downward pressure on
domestic wages and over time may increase the cost
of capital because of the rapid investment needed
to support growth.
"We
have to find ways to bring more Americans into the
'capital game.' Politicians will face pressures to
react to these forces, and those pressures will be
for protection against low-wage imports and against
capital acquisitions. It will be important to accept
and make the best of globalization despite its adverse
by- products, because consumers will gain so much.
It is preferable to find ways to live with globalization
rather than try to impede it."
Robert
D. Hormats, vice chairman, Goldman Sachs International
"We
(need) to put things into perspective. Americans tend
to panic because China seeks to buy a company that
produces the equivalent of 1 percent of the U.S. oil
supply and portray this as a threat to national security.
The vastly bigger national security issue is that
the United States continues to rely on imports for
60 percent of its oil needs. That is where our strategic
focus should be.
"There
are overlapping interests between Washington and Beijing.
Both countries want a stable supply of oil in global
markets. The task is getting China to think of itself
as a global consumer, who shares interests with other
consumers, and to trust the markets, rather than try
to lock up resources using equity arrangements. And
we can help China with clean coal technology?.
"The
crux of the matter is this: We need to create a dialogue
about how Beijing plans to use its growing economic
and political power and to encourage it to do so in
a way that creates a more stable and prosperous global
economy.
"In
the end, I do not think we need to worry very much
about China's increased global economic presence.
But we do need to see it as a challenge to us to boost
our competitive capabilities and improve our education
system."
Robert
Friedman, international editor, Fortune
"In
assessing the challenge of a China going global, we
are very far from any sort of threat situation. China
is still in an immature stage in terms of its outward
investments, and its track record, so far, is poor.
TCL acquired RCA but still has no profits to show;
Lenovo has seen profits go down by 85 percent after
it purchased IBM's PC division. Indeed, we should
be thankful that Chinese firms are willing to take
bankrupt or troubled U.S. assets off of our hands;
if these are companies in which China can use its
labor advantage to make them more productive, then
'bring 'em on.' The selling companies benefit by disposing
of assets that are no longer profitable.
"It
is not necessarily the smartest strategy for Beijing
to try to lock up natural resources in various parts
of the world. China is opening itself up to all sorts
of political risks its policymakers and business figures
have not foreseen in places like Nigeria and Pakistan,
where the Chinese are beginning to encounter a backlash
to their presence. Rebels in the Niger Delta seeking
more autonomy and greater control over their resources
have targeted Chinese oil workers as well as those
from Shell, which suggests that China's desire for
energy security may link it more closely with the
interests of the U.S. and other consuming countries
than with those of revolutionary movements it once
supported."
Fareed
Zakaria, editor, Newsweek International
"There
is a great deal of concern about China signing natural
resource contracts with 'rogue' states around the
world. I think we need to put this in perspective.
I see China less as an evil mastermind signing deals
with rogue states to thwart Washington's geopolitical
ambitions and more as a scavenger. The United States
and Europe have locked up the choicest oil suppliers
in the world. China is looking for equity stakes wherever
it can find them. If we are concerned about Chinese
involvement with less than desirable regimes, then
we need to find a way to collaborate with them as
consumers. I've always thought that a consumers' cartel
of petroleum is a better solution than to have individual
countries try to freelance?.
"(Politicians)
have to deal with realities. China and India are not
going to stop growing, they are not going to 'disappear.'
Our political leaders cannot escape the very clear
intersection between domestic and foreign policy in
dealing with the China challenge. This includes moving
beyond talking about competitiveness to having the
political courage to prescribe the remedies (some
of which may be unpleasant in the short run) needed
to heal an ailing American economy.
"China
certainly benefits from having low wage workers and
Chinese firms can sometimes turn to the state for
assistance, but Beijing is not responsible for a low
savings rate in the United States, or the costs of
our hyper-litigiousness, or our lack of investment
in education and research."
---
Last
week I said I was going to do a piece on oil prices
and equity indexes covering the energy sector?.I'll
get around to this next time.
Brian
Trumbore
BUYandHOLD
does not offer or provide any investment advice or
opinion regarding the nature, potential, value, suitability
or profitability of any particular security, portfolio
of securities, transaction or investment strategy.
The securities mentioned above are being used for
illustrative and informational purposes only and should
not be regarded as an offer to sell or as a solicitation
of an offer to buy.
|
