Wisconsin Public Radio

Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

Events & Activities

Stephen Olson at Chinese Development Institute Conference

 

 Clyde Prestowitz giving presentation to CDI...

 

Steve Olson teaching trade negotiations at the Mekong Institute...

 

Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(06/24/05) Clyde Prestowitz noted in The Globe and Mail

(06/24/05) Clyde Prestowitz noted in The Globe and Mail
Chinese bid for Unocal marks significant shift in strategy
The Globe and Mail
Copyright (c) 2005 by The Globe and Mail
Reuter International
Friday, June 24, 2005
By Greg Ip
WALL STREET JOURNAL STAFF
FOREIGN INVESTMENT
Chinese bid for Unocal marks significant shift in strategy


The proposed purchase of Unocal Corp.  by a Chinese company could mark an important shift in China's U.S. investment activity from passive purchases of bonds to direct interests in U.S. business.

China is generating some of the same tensions and fears that Japan did two decades ago with its growing investment in the United States, though many worries about Japan proved unfounded.

China's large trade surplus with the United States generates extra dollars for which it must find a use. Typically, it has invested them in Treasury bonds and bills and similar portfolio assets. At the end of April, mainland China held $230-billion (U.S.) in U.S. Treasury securities, according to the Treasury Department. The United States, in turn, must borrow from foreigners to finance its persistent trade deficits, and does so by selling Treasury bonds and other IOUs to foreigners, especially to foreign central banks such as China's.

China has used little of its growing stash of dollar holdings to buy direct control of U.S. enterprises. But if the purchase of Los Angeles-based Unocal goes through, Chinese direct investment would begin to rival its passive 'portfolio' investment. It would vault Chinese purchases of U.S. companies this year to $20-billion, according to Thomson Financial. That would easily surpass last year's record, $2.3-billion record.

In the prior 14 years, Chinese acquisitions never exceeded $2-billion a year, and were dominated by Hong Kong firms such as Tommy Hilfiger Corp. Britain handed control of Hong Kong to China in 1997.

Adam Posen, a scholar at the Institute for International Economics, a think tank, in Washington, said the growth of Chinese direct investment is an inevitable consequence of its economic development. 'When you're at the bottom of the development scale, you are ill-equipped as an investor and manager, in terms of human capital and associated-services infrastructure, to decide upon and monitor investments abroad.'

As a country develops, it gains the experience and sophistication to identify and capture the benefits of foreign investment, he says. Moreover, profitable investment opportunities within China are diminishing after years of hectic capital spending, making overseas opportunities more attractive.

Clyde Prestowitz, president of the Economic Strategy Institute, a think tank in Washington, adds that China's trade surpluses mean it needs to find uses for all its dollars and 'they've already got too many Treasuries. So they're looking to buy assets. Chinese companies are growing, they are ambitious, they want to be global players, they want to have global brands, and in the case of oil they are kind of obsessed with assuring energy security for the long run so they're buying up all the oil and oil rights they can find.'

Still, China remains a bit player as a foreign investor. This would be the first year it has been the leading foreign player in U.S. mergers and acquisitions, according to Thomson Financial.

Join our mailing list

Latest Publications


The Betrayal of American Prosperity.


The Trans-Paific Partnership and Japan.


Making the Mexian Miracle.


Industrial Policy and Rebalancing in the US and China.


The Evolving Role of China in International Institutions.

 

Contact us

Economic Strategy Institute

1730 Rhode Island Avenue, NW, Suite 414 |  Washington DC  |  20036
Ph (202) 213-7051  |  Fax (202) 965-1104  |  info@econstrat.org