American policy makers need to ask why the U.S. is not attracting more job-creating Chinese investment. While weakness in European economies has certainly played a role in this recent trend by offering Chinese investors bargain asset prices, we can't ignore the perception that the U.S. harbors an underlying hostility to Chinese investment. Recent political opposition to Shuanghui's acquisition of Smithfield reinforces this perception. Indeed, the response to this deal is representative of several worrying trends.Meanwhile, back in DC, the folks at the US Treasury replied to what they believed to be a mischaracterization of Committee on Foreign Investment in the US (CFIUS) procedures by Mr. Gilligan. Assistant Secretary for International Markets Marisa Lago counters:
One is Washington's tendency to define American national security interests unreasonably broadly. Some opponents of the Smithfield deal have suggested that pork production is a national security issue. It's hard to credit that argument in an economy where Americans already have access to an unimaginable array of foods, including a wide range of meats. Another is Washington's lack of transparency in its approach to vetting these deals. Politicians and policy makers are starting to move the goal posts with each deal. One example of this is the CFIUS process itself, the results of which aren't published. Earlier this year, a U.S. district court judge refused to throw out a claim by Chinese-invested Ralls Corporation that it had been denied due process when, without adequate explanation, regulators demanded that it divest its interests in four wind farms. The lack of clarity about how Washington will decide investment issues is a problem.
Greg Gilligan, in "America Needs the Smithfield Deal" (Sept. 4) mischaracterizes the role and processes of the Committee on Foreign Investment in the United States (CFIUS) and inaccurately describes the U.S.' policy on foreign investment.Contrary to Gilligan's claims, the CFIUS review process is non-discriminatory and transparent in its rules and procedures [...]Her response reminds me of Robert S. McNamara's: answer the question that you wish to answer, not what was actually asked. Many discussions that make or break PRC investment are conducted in backroom, informal meetings and not in public deliberations. So, saying that the rules are disclosed does not necessarily mean that the investors-to-be have a fair opportunity to air their views during deliberations. More importantly, she skirts the problem that "national security" is made to cover pretty much everything they can think of: If the Chinese purchase is unpopular with the political classes, they will find a way to relate it somehow to "national security."
Unlike other countries that place restrictions on investments in broad swaths of the economy, impose ownership caps, or review foreign investment for economic and other considerations unrelated to national security, CFIUS applies the same rules to each transaction that it reviews, regardless of the country of the investor or the economic sector of the investment. We welcome investment in our entire economy and from all countries, and from private and state-owned investors alike. Unless a transaction presents a national security risk, we welcome it.
And while we are required by law to keep information filed with CFIUS confidential, the rules that govern the CFIUS process, including its governing statute and regulations, are publicly available and fully disclosed online. It is a process that enables us to protect national security in a manner fully consistent with our policy to encourage foreign investment.
Going back to Gilligan, the evidence he cites for Chinese contempt is that the PRC is increasingly resorting to similarly vague and open-ended reasons that may be used to discourage US investment in the future:
Rules passed in 2011 allow the Ministry of Commerce to review a transaction's national security impact based on considerations of "economic stability" and "social order," without defining what these terms mean. Beijing also imposes an opaque and unpredictable review process on many foreign investments. It is hard for American businesses, or our government officials, to persuade Beijing to change such rules when Washington increasingly behaves in the same way.At any rate, the CFIUS has since cleared the way for the Shuanghui-Smithfield deal. Whether through embarrassment if it went ahead with "hog farm protectionism," do remember that past years have witnessed US opposition over what I would argue are similarly specious "national security" grounds. Consider the cases of Huawei-3Com and CNOOC-Unocal where the prospective Chinese investors pulled out knowing they would be turned down anyway.
Still, the Smithfield deal shows improvement on the part of the US, but keep in mind that the more relaxed Canadians have permitted far larger deals with the Chinese in industries supposedly subject to "national security" concerns. Me? I will reserve judgment until a larger mooted purchase of an American firm in energy or high-technology sectors by a Chinese one comes around.