Sino-US relations

Open up your markets if you want more business in US, China told

China’s investment in the US tripled last year to US$46 billion, compared with US$14 billion of US investment in China

PUBLISHED : Tuesday, 04 July, 2017, 8:01am
UPDATED : Thursday, 06 July, 2017, 11:19pm

If China wants to invest a lot more in the US, Washington should ask Beijing to grant wider market access and fairer treatment to American businesses in return, according to members of the US investment community.

Investment is likely to discussed during a US-China economic dialogue scheduled for this summer after US President Donald Trump has wrangled some trade concessions from Beijing. An investment treaty between the world’s two biggest economies has been discussed since 2008, but a slew of differences have been hindering the deal.

As Chinese businesses are eying investment opportunities in the US, it could potentially offer Washington new leverage with China to open up its domestic markets to foreign access, according to observers.

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Kenneth Jarrett, a former senior diplomat and the president of the American Chamber of Commerce in Shanghai, said equal access to markets would be leverage to “address some of the issues here”.

“Now suddenly you have so much Chinese investment going into the United States, [which] does provide an opportunity. It also has a symmetry because you can use it as a point to put pressure on the Chinese government to ease up at this end,” he told a symposium in Beijing on Friday.

China registered record high outbound investment of US$170 billion last year. Its investment in the US tripled to US$46 billion, compared with US$14 billion of American investment in China, according to data from the New York-based research group Rhodium.

Ninety-seven per cent of Chinese investment in the US was made through acquisitions, which makes it vulnerable to national security reviews by the Committee on Foreign Investment in the US. The reviews led to lower investment in the politically-sensitive information, communication and technology sector of US$3.2 billion last year compared with US$5.8 billion in 2014.

Daniel Rosen, the founding partner of the Rhodium Group, said the restrictions on investment in the US had brought about a debate about how open the United States was to foreign business and it could refresh tensions with China.

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“We had the debate in the 1790s concerning whether we were comfortable with British owning steel plants in America … in the 1930s after the first world war as to whether we were comfortable with German petrochemical plants… in the 1970s in terms of Arab petrol dollars getting recycled by US assets … and in 1980s with regard to Japanese capital coming into the US,” he said.

Beijing’s strict capital controls from the end of last year, primarily used to stabilise its exchange rate, are expected to drag down China’s US investment to US$25 billion to US$30 billion this year.

Real estate and entertainment deals, which have been labelled by the Chinese authorities as “irrational investment”, accounted for 37.6 per cent and 10.2 per cent of the last year’s total.

Nevertheless, Rosen believes China’s total outbound investment in the US will bounce back and eventually more than double to reach US$2.5 trillion in 2025.

Equal access to each other’s markets is a key barrier to agreeing an investment treaty. Both countries have conducted dozens of rounds of talks on the issue, but these have largely stalled since Trump was sworn into office.

Lester Ross, a managing partner at WilmerHale, a US law firm advising investment deals, said his clients would lobby first for specific interests to be addressed in the 100-day plan and the subsequent one-year plan agreed by the US and China to tackle trade imbalances. “A lot can be accomplished bilaterally without getting the treaty,” he said.

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China has tried to sweeten economic ties with the US after the summit between President Xi Jinping and Donald Trump in early April, including opening markets to American beef and natural gas, plus allowing more access for rating services, bond underwriting and issuing credit cards.

Disappointment remains, however, remains among US investors, despite China’s pledges, including shortening its negative list for foreign investment in 11 pilot free-trade zones from July 10 and Premier Li Keqiang’s promises at the “Summer Davos” forum in Dalian last week to shore up foreign investor confidence.

“The [bilateral investment] treaty is really needed ... because it will also address some of the licensing, timing, approval and other restrictions going beyond ownership caps,” said Ross at WilmerHale.