Bill Emmott - International Author & Adviser


Welcome, Chinese investors
Corriere della Sera - July 25th 2007

Foreigners don’t vote, and so they are a convenient target for politicians in all countries. That is why Europe’s trade commissioner, Peter Mandelson, France’s president, Nicolas Sarkozy, and a whole baseball team worth of American congressmen have lined up to bash China. Their accusations make no more sense than all the old attacks against Japan in the 1970s and 1980s. And they won’t do anything anyway: it is all just talk. There is, however, a newer and more difficult question: are they right to worry about Chinese investments in our countries, takeovers of European and American assets?

            First, though, briefly, the trade issue. It is true that China has a huge trade surplus: on the current account of its balance of payments, the surplus is nearly 10% of GDP. Three years ago, it was virtually balanced. It is true that this is the sign of a problem: an undervalued currency. But this is really a problem for China rather than for us.

The surplus—and all the accusations of unfair trade—really just mean that companies are sending partly-made goods to China from other Asian countries to be assembled cheaply there and exported on to us. China has taken over the surpluses that other Asian countries, such as South Korea, Taiwan and Malaysia used to have. It hasn’t changed things fundamentally.

The problem for China is that it is over-investing in new capacity, destroying its own environment, and failing to move upmarket to higher technologies: these are going to cause it difficulties in the future. But a currency revaluation would cause a shock to many interest groups in China, so the authorities are resisting it. Over the next year or so, they will probably start to revalue more rapidly, as otherwise China is going to face an inflation problem.

But what about Chinese investment overseas? The worry is that China has huge amounts of capital, much of it under state control. So if they buy companies in Europe, perhaps this will lead to Chinese government influence right in our own streets and industrial parks.

The best first reaction to this worry is to shrug your shoulders and tell the worriers to calm down. If someone wants to send you huge amounts of their money, it does not make sense to say no. Pour them a Prosecco to say thank you. The assets they buy cannot be taken away: they will stay in Europe. As long as they are subject to European laws and regulators, then there will be no more problem with a Chinese state-owned company being involved than with a French or British or Japanese multinational.

So, frankly, if a Chinese airline were to offer to buy Alitalia, then Romano Prodi should welcome them with open arms. The new owner would be under the control of Italian laws, Italian trade unions, even Italian politics. Unfortunately, the Chinese are shrewd businessmen, so they know that buying Alitalia with all those restrictions and burdens would not be a good deal. It is a pity.

There is, however, some good reason for a cautious second reaction in a few very special cases. Investment or ownership by a foreign state-owned company, especially one in Communist China, of a company involved in the defence business, or other areas directly involved with national security, would not be a good idea. China is not our enemy, but we are not sure whether it is our friend, either. So there is a good ground for caution in the defence field.

But that really is a special case. Everywhere else, the best response is to take the money and make sure laws and regulations are good enough to ensure social and governmental control. If the China Development Bank ends up with a 10% investment in Barclays Bank in Britain, no one will be harmed—except perhaps the China Development Bank, if the investment proves unprofitable.


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