US Block of Chinese Investment May Lead to Rising Int’l Protectionism – Scholars

© REUTERS / Jason Lee / US 100 dollar banknotes and Chinese 100 yuan banknotes are seen in this picture illustration in Beijing, China, January 21, 2016.
US 100 dollar banknotes and Chinese 100 yuan banknotes are seen in this picture illustration in Beijing, China, January 21, 2016. - Sputnik International
MOSCOW (Sputnik), Tommy Yang - The decision by US authorities to block investment from Chinese companies including Ant Finance and Huawei could trigger protectionist responses from China and other trade partners around the world, experts told Sputnik.

Chinese mobile payment firm Ant Finance, controlled by online shopping giant Alibaba’s founder Jack Ma, failed to obtain approval from the Committee on Foreign Investment in the United States (CFIUS) last week. Chinese smartphone maker Huawei’s planned deal with US wireless carrier AT&T also collapsed at last minute earlier this week due to security concerns, according to US media reports.

The Chinese Ministry of Commerce called the failed deals an indication of "rising protectionist sentiment" in the United States and said that China was concerned about the trend of setting up "glass doors" for foreign investments.

Countermeasures Against US Firms

The recent series of high profile cases where US authorities blocked acquisition plans by Chinese companies in the United States could cause other nations in the world, including China, rethink their policy on allowing foreign investment, Chinese scholars suggested.

"If the United States is determined to go toward this path [of protectionism], using all kinds of excuses to block Chinese investment, China needs to think about some countermeasures. It is impossible for the United States to demand continued openness from China, while it is leaning toward protectionism on trade and investment. The unfair conditions are unsustainable. If this trend continues, it could also hurt the United States, as other countries could apply similar tactics against US companies. If the United States doesn’t allow foreign companies to come in, why would we allow US companies to come to our country? It could trigger excessive responses from other countries, which could hurt investments from US companies in those countries," Zhao Xijun, a finance professor with the Renmin University of China in Beijing, told Sputnik.

The Chinese scholar suggested both nations need to work together to eliminate protectionist measures on trade and investment.

"Through bilateral communication and cooperation, both countries can try to get rid of the protectionist policies against each other. This would benefit citizens of both nations and building a fair environment for trade and investment between the two countries," Zhao said.

Market Access

One of the key reasons the US authorities cited for rejecting the deal between Ant Finance and MoneyGram is that the transaction could put US consumers’ private financial data at risk. The Beijing-based expert pointed out that US accounting firms have already obtained detailed financial information of a large number of Chinese companies.

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"Almost all the big Chinese companies are customers of the top four US accounting firms. But I haven’t seen any prominent US company to use service from a Chinese accounting firm. Those US accounting firms have extensive knowledge of the financial data of those Chinese companies," Zhao said.

However, US experts argued that such examples are overstating the openness of the Chinese market.

"I think it’s overstating with regards to how open the Chinese market is. For instances, if we look at payment systems, VISA and MasterCard are still effectively not allowed in China. About a month or two ago, China actually said foreign-owned car makers that have self-driving automobiles were not allowed in the country because of national security concerns. Let’s assume for a minute if Google or Apple wanted to buy Tencent and all of the user data that came with that. Is it likely Beijing would allow that? No, of course not," Christopher Balding, an associate professor of business and economics at the Peking University HSBC Business School in Shenzhen and author of "Sovereign Wealth Funds: The New Intersection of Money and Power," told Sputnik.

No Policy Shift

The difficulty Huawei faces in the US market comes from the company’s alleged close ties with the Chinese military. But Zhao, from Renmin Univeristy, asserted that similar military ties did not stop major US companies from doing business in China.

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"China imported a lot of products from major US companies such as Boeing, which continues to produce hardware for the US military. Many Chinese financial institutions continued to use products from IBM. From this perspective, many of the US companies doing business in China have close business ties with US government and the military. Such accusations are basically self-deceiving," he said.

Professor Balding, the Shenzhen-based US expert, pointed out that the negative perception against Huawei in the United States is not something new under the Trump administration.

"There have been reports on Huawei’s links to the Chinese government, specifically the People’s Liberation Army. These have been long-standing concerns even being held under the [former US President Barack] Obama administration. With regards to Huawei, this is not a shift in policy. This is not a Trump administration issue," he said.

China Not Targeted

With a growing number of Chinese investment plans in the United States failing to receive regulatory approval in recent years, some Chinese investors started to question whether their deals are put under closer scrutiny because Beijing’s increasingly assertive foreign policy started to raise attention in Washington. But professor Balding dismissed such a notion, insisting that Chinese companies are not being unfairly targeted.

"With the Ant [Finance] deal [with MoneyGram], that went through the standard M&A [mergers and acquisitions] procedure. The Committee on Foreign Investment in the United States reviews every major acquisition by a foreign company. I understand the Chinese perception. But the reality is simply that Chinese companies are really not treated fundamentally any better or worse than [companies from] other countries. There were statistics basically showed, over the last couple of years, China was not even among the top five countries that had proposed acquisitions rejected. Germany and Japan had more acquisitions rejected by the same committee," he said.

The US scholar explained that US authorities review foreign investments solely based on national security concerns, noting that investments by Chinese companies in Hollywood studios have not been blocked before.

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"From the politicians, I think the only concern is that firms have relatively direct relations to national security type of issues. The United States historically has taken a pretty narrow view of what constitutes national security. They’re not talking about grocery stories or automobiles. If you look at Hollywood, people argued that China is going to censor films and they probably have. But nobody stopped those investments. I don’t know there was one investment that was stopped by political reasons. I don’t think they’re really looking at them [Chinese investments] closer," Balding said.

Investment Risks

Following its failed attempt to acquire MoneyGram, Ant Finance had to pay a $30 million termination fee for the deal’s collapse. The Beijing-based expert suggested that Chinese companies could explore more investment opportunities in developing nations to avoid risks related to regulatory rejections in developed countries like the United States.

"Chinese companies need to do a comprehensive evaluation of the openness of the markets they plan to invest in. They need to try their best to understand related risks. It’s not like the United States is risk-free. On the contrary, the risks in the United States would be much bigger, caused by growing protectionist policies from US authorities. At the same time, some developing nations could welcome foreign investment more, for the purpose of boosting domestic economic growth," Zhao said.

READ MORE: China-US Trade War Unlikely, Despite Ongoing Friction

However, Professor Balding, the US expert at Peking University, stressed that the recent failed deals of Ant Finance and Huawei should not be used as examples to discourage Chinese investors in the United States.

"We’re looking at the Ant [Finance] deal and Huawei. Those are relatively specific and unique cases. The vast majority of Chinese companies have no problem doing business in the United States, either for trade or investment. I understand the perception. But I think those are both limited and unique cases. I don’t think those are, in any way, broadly indicative of a shift in broader sentiment," he said.

In September 2016, Chinese conglomerate Dalian Wanda Group, led by China’s richest businessman Wang Jianlin, bought US theater chain AMC Entertainment Holdings and production company Legendary Entertainment. About one month later, Alibaba struck a deal with Hollywood’s highest grossing director Steven Spielberg in October 2016 to produce, finance and distribute movies together through a partnership.

The views and opinions expressed by the speakers in the article do not necessarily reflect those of Sputnik.

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