Schell Gets China Investment Problem Half Right

In the Hutong
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As is the case with many China watchers who came of age in the 1980s, I am a longtime admirer of Orville Schell's writings on China. His books have been an essential companion to those of us seeking to understand the PRC and the social impact of the nation's economic and political evolution.

But in a recent article in Project Syndicate, "The China Investment Challenge," Schell, the former Dean of the Graduate School of Journalism at the University of California, Berkeley, takes a surprisingly one-sided take on the matter of China's investments overseas. He concludes:

If American officials do not begin to recognize the realities of today’s globalized world, the US may unwittingly (and self-destructively) find itself cut off from the kinds of new foreign investment flows that are sorely needed to revitalize its manufacturing and infrastructure sectors.

The congressional xenophobia that has blocked major foreign direct investment or acquisitions of ailing U.S. firms is lamentable, if not disgusting. But it is also predictable: America has experienced recurring bouts of fear and loathing toward foreign investment throughout its history. In recent years, Our Distinguished Solons have balked at investments from Japan, the Gulf states, and Europe. China is by no mean alone. A well-advised, thoughtful Chinese effort to purchase any major US firm or asset would have considered history, causing the potential buyer to approach the purchase with greater care. 

And this is the rub: half of the problem with Chinese companies buying American firms is U.S. opposition to Chinese investment. The other, more important half of the problem - which Schell alludes to but then ignores - is the core cause of that opposition, which is that the average U.S. voter and his elected representitive do not trust China or Chinese companies. That is not the fault of the U.S. Congress. That is the failing of a China that has not yet learned the importance of currying the trust of the outside world.

I suspect it will take some time before the leaders of the People's Republic take that need to heart. In the meantime, it falls upon the shoulders of Chinese enterprises seeking to invest or acquire in the United States to build that trust among Americans in spite of whatever they may think of China as a whole. It is certainly doable. Even in the height of "Rising Sun" Nipponophobia in the United States in the late 1980s, a handful of companies managed to rise above the fracas, including, notably, Sony, Toyota, Nissan, Toshiba, and Nintendo.

Chinese companies serious about investing in the United States - or Australia, New Zealand, Canada, or any other country where trust of China has become an issue - need to recognize that Brand China looks to many Americans like the Death Star from the Star Wars movies, and that the companies on their own need to build contacts, trust, and goodwill among the wider citizenry long before leaping into the fray. Until Chinese firms recognize that fact and act on it, the doors will remain closed, and the safe move on Capitol Hill will always be the blocking maneuver.

Posted via email from Silicon Hutong on Posterous

Comments

[twitter.com/elliottng]

David,

Isn't Party and government involvement in acquisitive Chinese companies part of the problem in getting approval from foreign countries for acquisition, not just a "Brand China" issue?

This issue was discussed in MacGregor's "The Party" and if large companies at scale have significant government ownership and/or Party involvement, it seems that most large, strategic acquisitions will be rejected.

Baidu or Tencent buying companies is very different from CNOOC or Anshun Steel cases mentioned in the Schell piece. All of the Japanese companies mentioned above are not controlled by the ruling political party and/or owned by the Japanese government.

I don't think this is a "Brand China" issue -- it is a "Team China" issue. When the acquirers are SOEs -- under SASAC purview -- it's only natural that countries around the world would be concerned about assets being acquired by the commercial arm of the Chinese government (and Party).