Why we should hail China's spending spree

[TheWrathOfGrapes]

Why we should hail China's spending spree

04:46 AM May 13, 2011
by David Pilling

Hardly a day goes by without news of yet another foray by Chinese companies abroad. In their hunger for commodities, technology and brands - or simply for better returns than can be had by buying up United States Treasuries - Chinese companies are grabbing assets around the world.

At least that is how it seems. In fact, that is tomorrow's story. According to a report by the Asia Society ("An American open door? Maximising the benefits of Chinese direct foreign investment") China is on the cusp of a lunge overseas that is likely to see it invest US$1,000 billion (S$1,240 billion) to US$2,000 billion in the next decade. That compares with the far more modest US$230 billion in Chinese foreign direct investment to date, which makes China the proud owner of just 1.2 per cent of all global foreign direct investment (FDI) stock - on a par with Denmark.

In the US, where the question of Chinese FDI is particularly controversial, China's presence is punier still. That is because, in the first phase of overseas investment, Chinese groups have concentrated on getting commodities and resources, where opportunities are greater in Africa and Latin America.

Official Chinese investment in the US amounts to US$2.3 billion, a paltry 0.1 per cent of all FDI stock. Because of offshore vehicles and the like, that underestimates the true total, which the report puts at US$11.7 billion. But even that is dwarfed by the US$454 billion British companies have invested in the US. When it comes to buying up America, China is in the little league with New Zealand and Austria.

That is about to change. Chinese groups have been shifting their focus. Now they are seeking to improve productivity, design and distribution. Targets in the US are attractive. Those already spooked by Lenovo's purchase of IBM's ThinkPad laptop unit, or by CNOOC's failed US$18.5-billion bid for Unocal, the California-based oil company, ain't seen nothing yet.

The real question for the US, and other advanced countries, is: Should Chinese investments be welcome? Are they part of some Beijing plot to grab technology and know-how? Or do Chinese companies offer much-needed capital and jobs?

The authors' sensible conclusion is that the US should develop a more rational response to Chinese FDI. It should remove politics from policy. Recall the initial fevered response to Japan's purchase of the Rockefeller Center and other icons of American capitalism. After the controversy died, US affiliates of Japanese companies - such as Toyota and Nissan - went on to invest US$1,000 billion in the US economy, creating 700,000 jobs. (Of course, they did bring Detroit to its knees in the process.)

DEALING WITH SECURITY CONCERNS

Certainly, the US has legitimate security concerns. But it has a robust process for dealing with these centred on the Committee on Foreign Investment in the US (CFIUS), which vets deals that could compromise national security. The authors judge this system generally sound. They point out that all investments, whether vetted by the CFIUS or not, are subject to laws in areas including security, antitrust and environmental compliance.

The CFIUS system has taken some high-profile scalps. Huawei, China's successful telecoms equipment group, has come unstuck in efforts to buy US assets over its alleged, and hotly disputed, ties with the People's Liberation Army. Recently, Huawei agreed to unwind a tiny US$2-million acquisition of 3Leaf, a US start-up.

The report warns that, as the scale of Chinese ambitions increases, the CFIUS will have to work harder to demonstrate it is subject to due process and oversight and convince investors it is "not being used as a tool for protectionism". It also urges Chinese companies to improve their corporate governance and distance themselves from the state.

With or without the CFIUS, the US has sometimes given the impression that Chinese money is unwelcome. CNOOC dropped its bid for Unocal after uproar in Congress and the media, even though the target company's assets were outside the US. Anshan Iron and Steel provoked opposition to its proposed investment in a new steel mill in Mississippi, while Tianjin Steel's US$1-billion investment in Texas breezed through. The report says this "unpredictable politicisation of national security considerations" is causing real problems.

The pressure is about to get more intense. In the past two years, Chinese investments in the US have increased by an annual 130 per cent. The report plays down the idea that Chinese companies are a front for China Inc, saying most are driven by commercial interest. Chinese companies sell Venezuelan and African oil to foreign countries, not to China, if they can get a better price. Only last month, China's Minmetals walked away from a US$6.5-billion offer for Canada's Equinox after Barrick Gold trumped its price. That suggests money is an object to Chinese ambitions.

That is where some will disagree. They see in China's state capitalism a grand design to create national champions through restricted competition and easy finance. Yet those with faith in free markets should be confident that, in the long run, such companies will fare worse than ones exposed to market competition.

Besides, if the US rejects Chinese investments, they will simply go elsewhere. The Financial Times Limited 2011

David Pilling is the Asia editor of The Financial Times.

[Kubes.SG]

Grapes, interesting article.  Thanks for sharing.  What is you view on it?

Here is mine:
-  it is good that China is now integrating and fully engaging with the rest of the world economically
-  this FDI from China will help address the one-way mercantile trade imbalance that has distorted economic growth globally
-  Govts need to be highly cautious of China initentions as the country is not yet mature, does not act as good corporate/global citizen, and is arrogant and greedy like not other country (except SG).
-  China does not respect and fairly treat their own citizenry, would probably treat foreigners similarly or worse
-  China does not respect or uphold the rule of law, contracts or intellectual property rights

[TheWrathOfGrapes]

My view is that without China's voracious appetite for commodities and minerals, Australia will really go down under.

[jalanperak]

Grapes, interesting article.  Thanks for sharing.  What is you view on it?


-  China does not respect or uphold the rule of law, contracts or intellectual property rights

Speaking of intellectual property, posting an entire article is technically a violation of fair use, and there are "copyright trolls" running around suing websites that allow this. I realize it's much harder to sue a non-US entity, but since the site is hosted in the US, it's possible one of these parasites could attempt to sue the hosting company, and generally cause a lot of hassles (their MO is to get the sites to pay them to go away. They don't like to go to trial because they occasionally lose and get a judgement against them).

This site doesn't allow commercial links, but they should allow links to non-commercial articles like this one. Four paragraphs or less is generally considered fair use, so what a lot of sites do is allow you to post up to four paragraphs of an article, then provide a link to the original source.

[Busy Body]

Grapes, interesting article.  Thanks for sharing.  What is you view on it?


-  China does not respect or uphold the rule of law, contracts or intellectual property rights

Speaking of intellectual property, posting an entire article is technically a violation of fair use, and there are "copyright trolls" running around suing websites that allow this. I realize it's much harder to sue a non-US entity, but since the site is hosted in the US, it's possible one of these parasites could attempt to sue the hosting company, and generally cause a lot of hassles (their MO is to get the sites to pay them to go away. They don't like to go to trial because they occasionally lose and get a judgement against them).

This site doesn't allow commercial links, but they should allow links to non-commercial articles like this one (actually, it depends on who's moderating. There's at least one moderator who will mindlessly delete everything, and at least one who can tell the difference). Four paragraphs or less is generally considered fair use, so what a lot of sites do is allow you to post up to four paragraphs of an article, then provide a link to the original source.

Thanks Dad, for the lecture.

[jalanperak]

Grapes, interesting article.  Thanks for sharing.  What is you view on it?


-  China does not respect or uphold the rule of law, contracts or intellectual property rights

Speaking of intellectual property, posting an entire article is technically a violation of fair use, and there are "copyright trolls" running around suing websites that allow this. I realize it's much harder to sue a non-US entity, but since the site is hosted in the US, it's possible one of these parasites could attempt to sue the hosting company, and generally cause a lot of hassles (their MO is to get the sites to pay them to go away. They don't like to go to trial because they occasionally lose and get a judgement against them).

This site doesn't allow commercial links, but they should allow links to non-commercial articles like this one (actually, it depends on who's moderating. There's at least one moderator who will mindlessly delete everything, and at least one who can tell the difference). Four paragraphs or less is generally considered fair use, so what a lot of sites do is allow you to post up to four paragraphs of an article, then provide a link to the original source.

Thanks Dad, for the lecture.

Hey, one of the *** that I participate on got sued by one of these parasites.

And I figured that since Kubes was complaining at poor IP protection....
 




Oh, and thanks for quoting my posting in its entirety. It seems that the brain-dead moderator is on duty right now, and he's mindlessly deleting links as well as any criticism of his moderating skills. Your quote preserved the original posting

[agent no more]

we are all here for the money.  Who isnt.?

[Vulcanl]

Kubes,

"...it is good that China is now integrating and fully engaging with the rest of the world economically..."

Well... how is this news...I mean, what have they been doing for the past 30 years?!? 

"....this FDI from China will help address the one-way mercantile trade imbalance that has distorted economic growth globally..."

No one twisted China's arm to force us all into the box we (Western developed countries) are in now.  We lived way beyond our means for decades and now it's time to pay up.  This 'distortion' was caused by The West, not by China

"...Govts need to be highly cautious of China initentions as the country is not yet mature, does not act as good corporate/global citizen, and is arrogant and greedy like not other country (except SG)..."

Please define what you mean by "good corporate/global citizen" 

"...China does not respect and fairly treat their own citizenry, would probably treat foreigners similarly or worse..."

Are you really sure you want to go down this road?  I don't see much respect and fairness coming out of our own vaunted Western Liberal Democratic Governments to us as citizens, either.  THINK for once

"...China does not respect or uphold the rule of law..."

OK Kubes...you mean like the members of NATO, unilaterally deciding that Qaddafi now has to go and invading that country/taking him out?  What exactly do you mean by the 'rule of law'?!?  WHOSE law?

"...contracts or intellectual property rights..."

The whole concept of IP is bullshit...it is a fictional concoction of MNCs intended to protect their interests.  No one else but Corporations are served by this.  I find it refreshing that 'respect' for IP rights is not as prevalent here in Asia as it is in the West

[jalanperak]

"...contracts or intellectual property rights..."

The whole concept of IP is bullshit...it is a fictional concoction of MNCs intended to protect their interests.  No one else but Corporations are served by this.  I find it refreshing that 'respect' for IP rights is not as prevalent here in Asia as it is in the West

So you think it's OK to freely copy software, music, etc?
 

[Vulcanl]

"....So you think it's OK to freely copy software, music, etc?..."

From a strictly moral standpoint, Yes I do. 

Taking a practical perspective, I acknowledge that it is troublesome due to the laws that have been put in place by Western Governments (lobbied by Corporations of course) to 'protect' such rights (which of course are not owned by individuals but by large MNCs). 

[Agent99]

"....So you think it's OK to freely copy software, music, etc?..."

From a strictly moral standpoint, Yes I do. 

Taking a practical perspective, I acknowledge that it is troublesome due to the laws that have been put in place by Western Governments (lobbied by Corporations of course) to 'protect' such rights (which of course are not owned by individuals but by large MNCs). 

Why would that be moral?

[jalanperak]

"....So you think it's OK to freely copy software, music, etc?..."

From a strictly moral standpoint, Yes I do. 

I thought you might.

Let's look at it another way. Do you think it's OK to go into Borders Bookstore and take a book without paying?

[Vulcanl]

Agent99,

"...Why would that be moral?..."

Scarcity.  What would you think of someone who tried to sell you sand or salt water at the beach? 

These guys explain the concept better than I can:

http://mises.org/Community/blogs/solreyus/archive/2009/08/07/non-scarcity-of-intellectual-property.aspx

"...Do you think it's OK to go into Borders Bookstore and take a book without paying?..."

This is not the same thing as real, tangible property (the paper, binding materials, ink, etc) is being legitimately exchanged.  See the above piece. 

And here's another paradox for you:  How can MNCs claim IP rights whilst concurrently engaging in industrial espionage?

[Agent99]

Agent99,

"...Why would that be moral?..."

Scarcity.  What would you think of someone who tried to sell you sand or salt water at the beach? 

Well, since you asked we visit the beach at Sentosa often and pay the entrance fee. We just booked a holiday at a beach front resort. I was ok paying more than a similar place not near the beach because it was right on the beach and they maintain the beach area.
I suppose I think it's reasonable to expect to pay if some-one has put the time, money and effort in to make the area nice.

Morally I feel glad to pay for a great song on iTunes it's only 2.18 and the artist deserves it. We always donate to Wikipedia one a year. I think people deserve to be compensated for their effort.

Copying or copying and selling stuff that people have put time, money, brains and effort into is immoral to me. But I will go look at your link.

[so what]

Agent99,

"...Why would that be moral?..."

Scarcity.  What would you think of someone who tried to sell you sand or salt water at the beach? 

These guys explain the concept better than I can:

http://mises.org/Community/blogs/solreyus/archive/2009/08/07/non-scarcity-of-intellectual-property.aspx

"...Do you think it's OK to go into Borders Bookstore and take a book without paying?..."

This is not the same thing as real, tangible property (the paper, binding materials, ink, etc) is being legitimately exchanged.  See the above piece. 

And here's another paradox for you:  How can MNCs claim IP rights whilst concurrently engaging in industrial espionage?

Vulcanl

This is quite a weird explanation.

When I develop software, it is going to be physically stored on a harddisk, same as letters on a piece of paper.
Once you buy the software, you get a carrier from me (CD or DVD), which definitely is tangible property.

You are right, noone can sell you sand or water at the beach.
Similarly, noone can sell you the letters "a" or "b".

Imagine you come up with a formula to convert water (which is a free commodity) into fuel.
You write that formula on a piece of paper, but someone copies that formula and sells in to an oil company.
What would you say?