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Sunday, 23 November 2014

Chump China

Even one-sided Chinese investment has its benefits

Canada wants equal rights for its companies to pile into China.  The country’s opposition leader says his compatriots would be “chumps” if they allowed state-owned CNOOC to buy Canadian oil group Nexen without China granting equal access to its natural resources. Demands for reciprocity seem only fair. But workers and investors in rich countries gain even if the money flows only one way. It’s the Middle Kingdom that misses out by being less welcoming.

China is not as closed as it is often portrayed. In 2010 it accepted $106 billion in foreign direct investment – second only to the United States and four times more than India, according to UNCTAD. Still, China-bashers do have a point: foreign investment in sectors like financial services and energy is still highly restricted. China can also take a dim view of foreign takeovers, as Coca-Cola discovered in 2009 when its $2.4 billion bid for Huiyuan Juice Group was blocked by the state.

The best economic outcome would be more openness on both sides. That said, the likes of Canada would lose from a from a tit-for-tat strategy. For a start, there is a lot to be said for accepting ‘stupid’ money from overseas. Americans had the last laugh when Japanese investors overpaid for trophy assets like the Rockefeller Center in the 1980s. With ample access to cheap credit, Chinese companies are in a good position to line the pockets of foreign shareholders, who can then put those funds to more productive use elsewhere.

The rewards are not confined to shareholders. Majority-owned Chinese companies in the United States already support 27,000 jobs. If America plays its cards right, that could climb to 400,000 by 2020, according to research firm Rhodium Group.

True, allowing foreign companies to take control of natural resources raises particular concerns. But these can be overcome by making sure that extraction is appropriately taxed, regardless of the nationality of the company doing the digging or drilling.

So Canada’s fear of being seen as a mug turns reality on its head. American companies have cash reserves of $1.7 trillion, while Canadian companies are sitting on close to $600 billion. To the extent that China imposes restrictions on foreign investors, it risks being the chump.

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Context News

The leader of Canada’s opposition New Democratic Party Thomas Mulcair said on Oct. 2 “reciprocity” with China should be a factor in whether the government approves a $15.1 billion bid by China’s energy company CNOOC for Canadian rival Nexen.
“Canadian investors would never be allowed to buy the raw natural resources of China,” Mulcair said on Tuesday. “So, there’s something terribly wrong with a government that keeps signing these deals where we pass for chumps, where they get something that we don’t get.”

Canadian Prime Minister Stephen Harper said on Oct. 4 that the deal raised “difficult policy questions”. In late August he said that securing the right of Canadian companies to buy Chinese companies was one of the “important questions” in the CNOOC-Nexen deal.

European business groups have also complained about Chinese restrictions. “European companies face many obstacles in China, while Chinese investors enjoy almost open access to the European investment market,” Davide Cucino, president of the European Union Chamber of Commerce in China, said on Sept.19.

Research by the Rhodium Group shows that majority owned affiliates of Chinese companies support 27,000 jobs in the United States, up from 10,000 five years ago. Chinese investment is on track to employ 200,000 to 400,000 Americans by 2020, the research company calculates. Chinese foreign direct investment into the United States was around $5 billion last year and is on track to hit $8 billion in 2012 this year.

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