Tuesday, October 2, 2012
Edward Alden of the Council on Foreign Relations has published a piece called “Obama’s misguided China slapdown.” I’m not sure I understand his point. The basic idea seems to be that the Obama administration, in blocking through the CFIUS process a Chinese acquisition of a small Oregon wind farm project, has damaged the US economy by sending discouraging signals to Chinese investors. But his argument seems to have some looseness in the joints.
Alden starts by implying that the rejection is something remarkable: he says twice that it’s the first presidential rejection of a foreign acquisition on national security grounds since George H. Bush did it 22 years ago. Well, stop right there. If something like this happens only once every 22 years, it’s a bit implausible to argue that it’s going to be a major discouragement to investors.
But of course just looking at formal rejections makes no sense. To gauge the foreign investment climate, we should also be including potential investments that were ultimately scrapped before they even got to the point where they could be reviewed and denied because the investors were put off by the reaction they had already elicited – for example, CNOOC’s proposed acquisition of Unocal, or just about anything connected with Huawei. If we did that, it would strengthen the argument that the US was hostile to foreign investment, but it would weaken the argument that the Obama administration did something extremely rare and thus presumptively improper. You can’t have it both ways.
OK, so let’s add in all those scrapped potential investments and get a kind of maximum hostility index. We still don’t know if Chinese investment is being discouraged. It might be that the blocked and scrapped investments were a tiny proportion of total investment and that most Chinese investors were having no problems. Indeed, Alden admits as much: he quotes David Marchik of the Carlyle Group as saying, “the vast majority of Chinese investments in the United States have either been approved or have not required any approval.” Under the circumstances, is a single formal denial going to have a big impact?
We might, by way of comparison, look at foreign investment in China. Barriers to foreign investment there are surely by almost any measure greater than barriers to foreign investment in the United States, and yet the foreign investment community has not been notably discouraged. Are Chinese investors are more skittish than their developed-world counterparts and are more easily frightened off?
Finally, as noted above, Alden agrees that existing barriers to Chinese investment in the US are, in fact, trivial. His piece turns out to be a concern about a perception – or more accurately, a misperception – on the part of Chinese investors that America might not be a good place to invest. I wouldn’t say that perceptions don’t matter, but still, I wonder if it’s really worth writing a whole piece to slam the Obama administration just for creating or encouraging a misperception of this kind.
For the record, I, too, find it hard to find a national security threat in a wind farm acquisition, but what do I know?