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Washington and Beijing are ostensibly having serious discussions of a bilateral investment treaty to improve transparency and other aspects of the trans-Pacific investment environment. One hopes it’s not really true, that the American side is just humoring the Chinese, because it’s impossible at present to see such an agreement benefiting the US.
Excluding bonds, Chinese investment in the US set a record last year. It’s on pace to set another record this year.
Just last week, Chinese technology giant Lenovo was approved by the US to buy IBM’s low-end server unit. A Chinese group that includes state-owned enterprises bid for American chip-maker Omnivision. There’s also Chinese investment in property, energy, and finance. The main complaint Beijing can offer in this context is that a court decision in favor of a Chinese enterprise over the US government took too long.
In stark contrast, American acquisitions in the PRC are on course for their worst performance in over a decade, even while there is strong American spending elsewhere in the world. There is good reason for the China-specific aversion: the Communist Party is harassing foreign companies, with American technology firms near the top of the list.
Qualcomm has been found guilty of violating China’s anti-monopoly law, punishment yet to be announced. Microsoft is next in line. At best, the law is bizarrely and harmfully applied, witness tiny InterDigital accused of bullying giant Huawei. At worst, it is Beijing coercing lower prices and technology transfer. The PRC did not treat multinationals well prior to General Secretary Xi Jinping’s government taking office and has treated them considerably worse since.
American business can be short-sighted in its approach to China (though others can apparently be worse). Believing a bilateral investment treaty (BIT) is a solution to the current bout of mercantilism would be exceptionally short-sighted. Looking backward, the lesson from China’s WTO accession is clear: do not sign an agreement hoping to bind the PRC when the Party has another development path in mind.
Looking forward, the recent policy shift – what China wants – indicates that any BIT concessions – what the US wants – would be imaginary. They would shortly be finessed, sidestepped, or simply ignored. A BIT signed in 2015, for example, would see American business in 2018 complaining that the Chinese are cheating and calling for a free trade agreement to create a truly open market. Again.
For Beijing to merely return to the pre-Xi government days would be an improvement. But the new government’s hypocrisy in its words versus its actions robs it of the credibility needed for a proper BIT negotiation. For that, there must also be clear and sustained progress in showing that market competition is welcome from all comers, including multinationals.
On this side of the Pacific, the US should treat Chinese investment on the basis of how it affects our economy. That the PRC is a poor partner is not a good reason to shoot ourselves in the foot by blocking beneficial transactions. It is, however, a good reason to put a BIT on hold for a good while.
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