Tuesday, May 22, 2007

China dabbles in high finance, prompting US concerns

Sources: Los Angeles Times: China taking a stake in US investment titan; Reuters: China not expecting control of foreign companies: paper.

The United States is perhaps the world’s biggest proponent of “free trade”, open markets, and liberalized economies. However, the US government’s enthusiasm for globalization appears to wane when foreign countries begin to invest in domestic (US) companies or markets. This kind of trepidation resurfaced this week as the Chinese government invested a substantial sum--$3 billion--in the Blackstone Group, an aggressive US investment firm that has stakes in a number of leading US corporations.

China’s government operated entity, the State Investment Co., will hold a stake in Blackstone that amounts to just under 10% of the management company’s stocks. If the deal had met or exceeded 10%, it would have required approval by the US government. Notably, Chinese holdings in Blackstone will be tied to the management company as opposed to the funds it controls. Further, the stocks purchased by State Investment Co. are non-voting shares, so concerns about undue influence being exerted on US firms and financial markets is likely unfounded.

Reports note that this is a major move for China, a growing power in the global market. They also suggest that it is part of that country’s shift from operating almost solely as a center for affordable manufacturing (something that US and other interests have taken advantage of for years) to a player in the world of high finance. It appears that it is this transition may be the source of US concern; reports note the fact that China backed out of a bid for the oil giant Unocal in 2005 amid harsh public criticism of the proposed deal in the US.

For discussion: Do you think that US concerns over China’s growing involvement as a leader in global markets are misplaced?

Is China’s prosperity and growing economic prowess a success story, a threat, or both?

What is the goal of economic development if not to empower nations to engage globally in financial markets?

Is US discomfort linked to valid concerns regarding economic security or is it a protectionist, NIMBY (not in my backyard) approach to free markets?

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