US panel backs takeover ban for Chinese state-owned firms

With Washington heading in more hawkish direction, China must respond by opening up state companies to private investment, analysts say

PUBLISHED : Thursday, 17 November, 2016, 11:06pm
UPDATED : Thursday, 17 November, 2016, 11:06pm

A top US congressional panel has called on Washington to ban Chinese state-owned firms from taking over US companies, citing national security concerns.

The recommendation in a report on Wednesday from the US-China Economic and Security Review Commission comes amid intense speculation about US president-elect Donald Trump’s likely policy on China and fears of a trade rift between the two ­countries.

Chinese analysts said Washington was almost certain to take a tougher line on Chinese investment and Beijing had to respond by fulfilling promises on ownership reform of state firms.

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Zhang Yansheng, a researcher with the National Development and Reform Commission, said similar suggestions had been made in the US before.

“The key is to go through with pledges to reform state firms, to introduce private ownership and diversify equity structure,” Zhang said.

Tsinghua University economics professor Li Daokui said attitudes to Chinese investment in the US would only become more hawkish and this would affect agreements between the world’s two biggest economies.

“The general climate in the US will affect China’s investment in the US, and it will also cast doubt on the bilateral investment treaty talks,” said Li, who is a former adviser to China’s central bank.

Yu Yongding, an outspoken senior government economist, said Beijing should focus more on helping Chinese companies tap onshore business.

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“The government should help unleash domestic investment potential for state firms, and it takes time to gain experience going overseas. There’s no need to rush,” Yu said.

In its report, the US commission also said Chinese investment in the US this year would be at least double the US$15 billion benchmark set last year, despite a sharp fall in the share of investment by state firms. Private Chinese investment surged, it said.

American economist and 2001 Nobel laureate in economics ­Michael Spence said the blurred lines between the Chinese state and corporate world had made it hard for Washington to see the true driving force behind the deals.

“In most of the West, there is a fairly sharp distinction between the government and private sector,” Spence said at a forum in Hong Kong yesterday.

“[But] we can’t tell that [a state-owned enterprise] is implementing the Chinese government’s policies or as companies. That’s where the problem is.”

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Though the report raised an alert about China’s acquisition of technology assets, it said the investment coverage “has become much more diverse”, with real estate and financial services at the top of the list in 2015.

It said the rapid rise of the investment was driven by the China’s “going out” policy, capital flight and Chinese companies’ ­demand to diversify investment amid an economic slowdown at home.

Foreign ministry spokesman Geng Shuang said the report “has again revealed the commission’s stereotypes and prejudices”.

Additional reporting by Sidney Leng