Washington DC is a long way from Beijing, but your correspondent’s saurian ears detected angry rumbles on Capitol Hill this month. Although the protectionist locomotive has yet to gather significant momentum, signs of an impending backlash against Chinese investment in US assets are growing.
Last month Thaddeus McCotter, chairman of the House Republican Policy Committee, attacked Shenzhen-based tech company Huawei’s proposed 16.5% stake in 3Com, a US networking equipment maker that owns patents to computer hacking “intrusion prevention” technology.
“In light of Communist China’s continued cyber-space attacks, the acquisition of 3Com by Communist China’s Huawei Technologies is a direct threat to we free people,” he wrote apocalyptically in a letter to Congress.
Other lawmakers soon took up McCotter’s cause, urging the Treasury Department to examine Huawei’s reported links to the People’s Liberation Army on national security grounds.
National security is the protectionist’s trump card when it comes to warding off unwanted Chinese advances into Capitalist America’s territory. When state-owned China National Offshore Oil Corp (CNOOC) launched its ambitious US$18.5 billion bid for US oil firm Unocal in 2005, the deal was scuppered by Congressional horror that at the Chinese government would be acquiring a strategic asset.
Financial institutions may be less sensitive to Congressional fears than oil companies, but if CITIC Group does act on its rumored bid for 20% of troubled brokerage Bear Stearns, it won’t be long before we hear talk of China digging its communist claws into the heart of corporate America.
Another financial deal, Beijing-based Minsheng Bank’s move to buy 10% in small US lender United Commercial Bank, seems to have passed under Congress’s radar. But China Investment Corp’s acquisition in June of a US$3 billion stake in private equity firm Blackstone Group, by far the biggest direct investment made by a mainland company in the US, pricked political antennae.
For the past few years US lawmakers have largely been too distracted by the war in Iraq to pay much attention to China. But with signs that the US presence there will gradually be scaled down and the Beijing Olympics looming next year, attention is slowly turning further eastwards.
The Treasury-run Committee on Foreign Investment in the United States (CFIUS), which actually approved the CNOOC-Unocal deal before Congress intervened, has long been considered a paper tiger in Washington. But it is said that the committee will soon be beefed up, which means it might present a far larger barrier to Chinese firms looking to buy a slice of the American pie.
For mainland companies wishing to expand, the fear is that the US attitude towards China will come to resemble the backlash against Japan in the 1980s. The comparison between the two countries’ investment interests currently bear no comparison: Japanese firms spent US$300 billion on US assets during the 1980s, whereas China’s global outbound investment last year was just US$17.9 billion.
The challenge facing China is that, as long as it retains its “communist” moniker, the hawks in Congress will have a convenient political stick with which to beat off any deals they claim threaten “national security.” Chinese companies have cash to spend, and they naturally want to spend some of it in the world’s biggest single market. The problem is that Congress may not let them.
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