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China is Investing in… the U.S.?

June 30, 2011

CGP has written a number of blogs on China’s increased presence in Africa, but what about China in the U.S.? These days, everything China-related seems to be tainted with suspicion.  For example, the inflow of Chinese capital flows into the United States has raised some questions:

Is Chinese foreign direct investment (FDI) a bad thing?
Does it somehow undermine American national security?
Are the Chinese buying out companies in sectors strategic to America’s defense capabilities?

Last Tuesday, the Woodrow Wilson International Center for Scholars invited two leading experts on the Chinese economy to discuss these very questions and their implications. Daniel Rosen, Adjunct Professor at Columbia, and Derek Scissors, Fellow at the Heritage Foundation, suggested that Chinese FDI is not as bad as some people would have you think. Here are our takeaways*:

  • Chinese investments in America are relatively small, standing at about 0.00035% of US GDP.
  • Chinese investments in America are, by-and-large, commercial non-strategic . This means two things: 1) firms are acting like profit-seekers, looking to obtain larger margins that they can get at home, and  2)  investments are uncoordinated and diverse across sectors–China is not strategically investing to take over certain sectors of the economy.
  • Longstanding US checks on the private sector are capable of coping with national security threats in the form of FDI. Specifically, Rosen and Scissors point to the Committee on Foreign Investment in the United States (CIFIUS) which evaluates incoming FDI on the basis of national security.
  • Most members of Congress understand this and consequently believe that Chinese investment is good and desirable.

*For a more thorough discussion of these issues we point you to the information available in Scissors and Rosen’s respective websites.

So, it’s good! As it turns out, at least for these scholars, Chinese FDI is not controversial. Rather, as Scissors points out, Chinese interest in America reveals an opportunity. By using access to the American market as leverage it may be possible to change undesirable Chinese behavior. For instance, the US could restrict access to American markets so long as Chinese authorities continue promoting unfair market regulations (which grant state-owned enterprises exceptions, and shower them with finance opportunities).

If this worked, Scissors suggests, US-China relations could improve substantially. For instance, openness in the Chinese economy could be the springboard from which democracy finally arrives.

Ironically for Scissors (a Heritage scholar), his predictions hold true only if the American government can lobby the Chinese government correctly (get it right)–and if the magnitude and direction of Chinese investments remain unaltered.

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