While France and Germany busy themselves with talk of legislation to protect themselves against the threat of foreign sovereign wealth funds, last month Britain appeared to open its doors to them.
Kitty Usher, the UK’s City of London minister, welcomed Lou Jiwei, head of China Investment Corp (CIC), Beijing’s sovereign fund, insisting that “Britain is open for business to investors of all nationalities.” Lou reportedly has around US$90 billion of CIC’s initial US$200 billion to spend on overseas assets.
On the face of it, the UK is a model example of how to embrace globalization – for better or worse. The country has little in the way of a manufacturing industry left to defend and has allowed foreign fingers to extend deep into its financial services, transportation and utilities industries.
Could CIC pick anywhere better to start shopping? This is debatable.
What Usher appeared to have in mind was CIC using London as a headquarters for its international operations rather than purchasing UK assets. Indeed, British politicians have discussed possible grounds for blocking a sovereign fund if it tried to buy strategic assets.
In CIC’s defense, its strategy is likely to involve buying small stakes in uncontroversial enterprises on the basis of potential financial gain more than anything else – although a bit of transparency could work wonder on suspicious foreigners.
What this London episode demonstrates is how easily – and on how comprehensively – attitudes toward foreign investment can change.
At December’s Strategic Economic Dialogue, the US and China held talks on a bilateral investment treaty, with Beijing insisting on a commitment that Chinese banks be treated like any other foreign companies if they try to purchase stakes in US banks.
Whatever is finally agreed, as soon as an investment deal appears on the radar that displeases the political core – in either country – new strategies will emerge to stop it.
Does a bid from Chinese firm Huawei for a minority stake in 3Com, a US telecom equipment maker that has government contracts, represent a threat to US national security (and therefore offer grounds for the Committee on Foreign Investment in the US to recommend a veto)? What about a Chinese takeover bid for a US oil company whose assets are almost entirely beyond American borders?
These issues represent lines in the sand that can be drawn and redrawn. It all depends on which way the political winds are blowing.