Bilateral deal could defuse Sino-US tension over Chinese M&A
Moves to curb Chinese foreign direct investment in the US ignore the positive spin offs and huge traffic in the opposite direction
A rising chorus in Washington to curb stateside Chinese investments drowns out a key fact: total American investment in China, with its labor and tax loophole benefits, already dwarfs anything that the Chinese have invested in the US.
Rhodium Group reckons that between 1990-2015, there were nearly 6,700 US Foreign Direct Investment (FDI) transactions in China with a combined value of US$228 billion. This is more than three times the US$64 billion Rhodium says China has invested in the US over the same 25-year period.
The New York-based researcher further estimates that as of 2015, total US FDI stood at US$6 trillion worldwide, accounting for 24% of the global total, making the US the largest single FDI contributor of any nation in the world.
From Beijing’s side, the positive spin offs from Chinese investment aren’t limited to the US. A 2015 Report on the Sustainable Development of Chinese Enterprises Overseas by the United Nations Development Program China and Chinese government think tanks says that Chinese companies on a global basis pay local taxes, employ host country workers, engage in local procurement, aid local innovation, provide technology transfers and follow local environmental laws. The findings are based on responses from 254 Chinese companies operating worldwide, including SOEs and private firms.
Former US Treasury Secretary Henry M. Paulson noted in a September paper that US firms that strike a strategic partnership with a Chinese investor can access new markets in China. He says small and midsize US firms, manufacturers, startups, farmers and ranchers can theoretically find Chinese customers through such investor ties. Paulson also noted that the scale and capacity of China’s market can commercialize their products quickly and cheaply.
Analysts say one step that could defuse Sino-US tensions over acquisitions is the successful negotiation of a long-stalled US-China bilateral investment treaty (BIT).
A BIT is a government-to-government agreement that sets binding rules governing the treatment of foreign investors and investments from each country.
The talks, ongoing since 2008, gathered steam last summer after China signaled its readiness to protect US investments at all phases and in all industries, unless specifically excluded. In return, Washington said it would set rules that protect Chinese outbound investment to the US market.
But the treaty’s fate remains uncertain in the face of an incoming Trump administration and likely inaction from a lame duck Obama White House.
“Successful negotiation of a US-China BIT has never been more important,” said Marney Cheek, the co-chair of law firm Covington& Burling’s international arbitration practice in Washington, D.C. “An agreement would provide legal certainty for foreign investors from both countries at a very uncertain time. With the threat of a trade war on the horizon, the BIT would pull in the opposite direction, showing a commitment on both sides to the core principles of open markets and nondiscrimination.”
Cheek, an expert on investment treaties, notes that US industry has strongly supported a US-China BIT as a way to nix investment barriers and increase transparency. She says discrimination in favor of state-owned-enterprises “comes in many flavors in China,” and that an investment treaty would tamp down on what some see as a pervasive thumb on the scale for domestic Chinese companies.
“But the treaty is a two-way street,” Cheek said. “Given the anti-China rhetoric in Washington right now on trade and investment issues, China should welcome a BIT that guarantees Chinese investors access to certain US industry sectors and commits the US to principles of nondiscrimination.”
New commerce secretary
Bilateral discussions as part of the 27th US-China Joint Commission on Commerce and Trade talks concluded in Washington on November 23 without making significant progress on a BIT.
Zhang Xiangcheng, China’s deputy international trade representative, told state-run China Daily at the end of the session that Beijing is “willing to push for a conclusion of the BIT as soon as possible.”
Outgoing US Commerce Secretary Penny Pritzker reportedly told Zhang that Chinese investment in the US is welcome and will receive fair and equal treatment from Washington.
A November 24 Bloomberg story quoted an unnamed source as saying that Trump will nominate billionaire businessman Wilbur Ross, a supporter of his trade and economic agenda, to be the next secretary of commerce. The report hasn’t been confirmed.
Doug Tsuruoka is the Asia Times Editor-at-Large