China should set up an infrastructure investment fund as a way to ease US concerns over national security and job losses while increasing its chances of participating in US president-elect Donald Trump’s ambitious infrastructure plan, according to the head of a US organisation dedicated to improving Sino-American relations
“The sensitivity in America [towards foreign investment] is not generally the nationality of the investor, but the nationality of those providing the labour, Stephen Orlins, president of the National Committee on US -China Relations (NCUSCR), said in Beijing on last Friday.
Job creation was one of Trump’s key campaign promises that lead to both his US$500 billion infrastructure spending plan as well as his trade protectionist stance, Orlins told a symposium on China-US trade at the Yale Centre Beijing.
However, the US would welcome private funds, including foreign capital, given its widening fiscal deficit and US$19.5 trillion debt, Orlins said.
The returns on such an infrastructure fund would be higher than US Treasury bills, which account for 37 per cent of China’s US$3.1 trillion foreign exchange reserves.
“It won’t be (as high as) 20 per cent, but it won’t be (as low as) 2 per cent either,” Orlins said.
Mainland observers, however, remain sceptical of the infrastructure fund proposal citing the overall negative atmosphere in the US. A number of Chinese acquisitions have been blocked by the Committee on Foreign Investment in the United States in recent years.
China Investment Corporation, the mainland’s sovereign fund manager, believes the fund would still subject to US scrutiny.
“We were told by some American friends that it would be impossible for Chinese contractors to get a piece of the pie. All the infrastructure will have to be built by US companies,”Zhang Yansheng, secretary general of the National Development and Reform Commission’s academic committee, said on Friday. “Both China and the US are sensitive about security issues.”
Such fears are expected to intensify under a Trump presidency. A congressional panel, the US-China Economic and Security Review Commission, last week recommended that Chinese state-owned enterprises be banned from acquiring US companies.
US concerns over China investment in its manufacturing and mining sectors has meant fewer chances for China to penetrate the labour-intensive infrastructure construction sector – even for such an infrastructure fund in the short term – said Yu Miaojie, deputy dean of the National School of Development at Peking University.
“To alleviate US government worries and better understand local markets, Chinese companies should ensure that at least 90 per cent of jobs went to US workers,” Yu suggested.
This, however, raises the question of whether Chinese contractors can repeat their successes in other countries when they face unionised American workers and strict US regulators. Chinese contractors may not be able to enjoy their comparative advantage in costs – especially labour – and building expertise in the US market.
While China complains about unfair treatment, the US is likely to seek a similar opening-up of China’s markets as a precondition for the fund. Their different agendas are set to prevent the world’s two largest economies advancing their economic ties. china
Infrastructure could be a touchstone for mutual trust between China and the new US administration. But this may not proceed after the negative list of sectors not open for investment is finalised in the two nations’ Bilateral Investment Treaty that is about 90 per cent completed following years of difficult negotiations.
The two countries were previously scheduled to hold talks in Washington this month, before the surprise Trump presidential victory cloaked the project in uncertainty.
Nonetheless, since surpassing Canada to become the United State’s largest trading partner last year, China has stepped up its direct investment. It had already invested US$63.9 billion in the US in 1990-2015, much higher than official figures, according to a research by the NCUSCR and Rhodium Group. Two thirds of Chinese investment was from private investors, while Chinese companies have created more than 100,000 jobs in the US.