By Mei Xinyu
With all the concern over the dramatic imbalance in China-US
trade, it is expected that the second round of China-US Strategic
Economic Dialogue concluded in Washington last week will further
open the door for direct investment by China in the US.
The Chinese government is making unprecedented efforts to boost
imports and reduce the trade surplus. However, reversing the trade
imbalance by increasing Chinese domestic demand or dramatically
increasing Americans' savings is a distant possibility.
A more effective means to cut down the surplus in China's
current account is to raise overseas direct investment. Overseas
direct investment could powerfully upgrade the structure of China's
overseas assets.
The State reserve of foreign exchange accounts for the majority
of China's overseas assets, and the proportion is climbing
quickly.
The managers of the reserve are loaded with risks in the foreign
exchange market. They also face the danger of pumping extra money
into the Chinese economy which is already troubled by excessive
liquidity.
These pressures would be dramatically eased when overseas direct
investment is geared up. This use of overseas direct investment has
been effectively used by many countries.
In the 1970s, Japan had planned to make huge investments in
countries across Latin America, Asia and Africa in an attempt to
promote the industrialization of the developing countries to
stimulate the export of its industrial equipment.
The Maekawa Report, released in 1986 by an advisory council to
then Japanese Prime Minister Yasuhiro Nakasone, suggested that
Japan should transform its economy to depend on domestic demand by
boosting consumer spending and overseas direct investment to reduce
Japan's huge surplus.
China is now enjoying a demographic dividend. A relatively large
share of the population has reached the prime age for working.
Saving is high for most of the working population and spending on
dependents is relatively low.
At the same time, the problem of an aging population is looming.
It is very likely in the not-too-distant future that revenues from
overseas direct investment will be used to help China's aging
population share the economic growth in other countries and regions
around the world.
China's developing overseas direct investment is also in the
interest of the US. The US has seen an extremely low level of
personal savings in last decades, so it has to depend on money
inflows to bridge the gap between domestic deposits and its foreign
investments.
According to statistics from China's Ministry of Commerce and
the National Bureau of Statistics, China's direct investment in
other countries and regions was US$57.2 billion by the end of 2005
while the figure from the State Administration of Foreign Exchange
was US$64.5 billion.
Considering the fact that many investments are not officially
registered, the actual overseas investment from China could well be
larger than the government figures.
Within the official figure, Chinese direct investment in the US
was a modest US$823 million at the end of 2005.
For Chinese investors, the US is an attractive destination, not
only for its huge market, but also for diversified resources like
cotton, timber and grain. Yet, Chinese investors have experienced
numerous obstacles when they try to invest in the US.
When CNOOC, China's largest offshore oil and gas producer, tried
to acquire the US energy company Unocal in 2005, and Lenovo,
China's giant in computer technology, bought the PC line of IBM the
same year, both Chinese companies felt huge pressure from the US
public and interest groups as well as the government in CNOOC's
case.
Chinese companies encounter more barriers when they try to
penetrate the US financial sector. For more than a decade, Chinese
banks have repeatedly been denied permission to set up branches in
the US. In contrast, more than 100 business outlets and offices of
US banks now operate in China.
The US insurance market is also closed to Chinese investors.
Many US states stipulate that only foreign insurance companies with
existing operations in other states can open businesses or set up
branches. Such stipulation makes it mission impossible for foreign
insurance companies to gain a foothold in the US market.
With China's huge potential for overseas direct investment, many
countries and regions are trying to lure Chinese investors. At the
same time, the US needs foreign capital for sound economic
development.
Therefore, it is high time for Chinese investors to get fair
treatment on the US market.
?
Before the first China-US strategic economic dialogue last
December, US Treasury Secretary Henry Paulson pointed out that one
of the three key areas in the dialogue was encouraging both
countries' markets to be more open to trade, competition and
investment. Since investment and transparency were concerns in last
week's dialogue, Chinese investors may soon experience a friendlier
environment in the US.
The author is a researcher with the Chinese Academy of
International Trade and Economic Cooperation.
(China Daily May 30, 2007)
