China Investment In US Could Be Hampered By Poor Judgement

The report calls for “clear thinking” by the US government so that the opportunity to take Chinese investments will not be regularly blocked.

Worries about Chinese ulterior motives for investing in the U.S. may be overblown.  For instance, Japan built much of its knowledge about the car and electronics sectors through its benchmarking of American companies.  As long as the US has a lead in industries like software and content creation, foreign interest, driven in some cases by access to American expertise, is inevitable.

The other aspect of China investment, left unspoken in the Asia Society report, is that capital from the People’s Republic may help US companies while hurting the Chinese.  Remember, Chinese investors who invested in U.S. financial services firms got crushed when the economy nose-dived. The money, however, helped some of these firms weather the credit crisis.

And, China may want to look at the lessons learned by Japan. Japanese capital helped build real estate values in the US and definitely added jobs as Japanese manufacturers added plants here. Companies such as Toyota (NYSE: TM) may look at those decisions and regret them. American plants are by no means more efficient than those based elsewhere. Toyota also faces the prospect of UAW action to unionize workers. Toyota felt it needed to create American jobs to offset objections to its success in the US. Whether that worked or not is unclear, but it created a lot of jobs.

China will now get its swing at the pinata of American business opportunity. No matter what the Asia Society recommends, companies and politicians will irrationally block some investments. That will still give China plenty of chances to put money into the highly diverse US service and manufacturing sectors. Whether those investments will be wise and profitable is another matter.

Douglas A. McIntyre