I hope I’m not beating a dead horse here (i.e., talking repeatedly about the same issue), but some of the local push back I’m seeing here in China on these U.S. investment deals is rather mindless. Obviously we have hit a rough patch with respect to outward Chinese direct investment to the United States. Just in the past few weeks, we’ve seen the Ralls wind farm rejection and two separate investigations against Huawei (one of which also dealt with ZTE) which concluded that doing business with the telecom firm(s) would entail a significant security risk.
Is there any connection between the Ralls rejection and the Huawei/ZTE investigations? Here’s a statement from Xinhua today that says yes:
It was not a coincidence that Chinese construction equipment maker Sany Group sued US President Barack Obama and Chinese telecommunications company Huawei was cleared of espionage suspicions by a White House-ordered review.
These two Chinese companies were both blocked from investing in the US market for the reason of allegedly posing “national security risks.”
The national security excuse has backfired, with some US politicians making something out of nothing.
Yes, both of these items involved Chinese companies and perceived national security risks. But if the results were not a coincidence, what does that mean?
I assume that we are supposed to believe that there is a China bashing conspiracy going on here, that Huawei, ZTE and Ralls have all been treated unfairly for some reason (China bashing or protectionism – not sure which one Xinhua was going for this time).
Of course, if you’re going to posit that this was all coordinated, it might help to explain why. Aside from these being Chinese companies and the problems being related to national security, I’m not sure what the common thread here is.
As I’ve written many times now, I have problems with the Ralls decision. I find it difficult to believe the national security objections, particularly since Ralls had already complied with a U.S. Navy mitigation plan. That’s why with respect to this deal, I question whether China bashing or some sort of protectionism might be involved.
With Huawei and ZTE, I take the other position. The fears of future security problems seem reasonable, and certainly not so far fetched that, in the absence of clear evidence to the contrary, I would entertain the possibility of local protectionism or good old fashioned China bashing.
So I’m not buying any attempt at dumping these items in one category and calling it a trend.
Moreover, let’s make sure we stick with the facts. The above quote notes that these Chinese companies have been “blocked” from investing in the U.S. Not exactly true. Ralls had one project blocked, but I don’t see any reason why it cannot continue with other U.S. deals.
For Huawei and ZTE, their future in the U.S. looks much dimmer, although neither the House report nor the White House investigation blocked anything, but were more akin to supervisory opinions. The result might very well be that future deals involving Huawei and ZTE will indeed be blocked as a result of these investigations, but technically neither the House committee nor the White House are the ones doing the blocking.
I am also confused by Xinhua’s use of the term “backfired.” Exactly what has backfired for the U.S.? That’s very odd language. For something to backfire, there needs to be an unwanted effect. The U.S. has made life difficult for Ralls, Huawei, and ZTE, and it has angered Beijing. In the future, U.S. companies may very well run into some problems in China because, you know, reciprocity is a bitch. By the way, China has its own national security review process, albeit a relatively new one. You think it might start using it? You bet your ass. But this is all speculation, and for the U.S. government, so what? Nothing has backfired, at least not yet.
Finally, a quick comment on the Sany/Ralls lawsuit, which I’ve also mentioned before. Sany’s chairman has been quite vocal about how he intends to take this “all the way.” Unfortunately, the U.S. statute that authorizes CFIUS and the president to make these investment decisions does not allow for judicial review of presidential orders. Sorry, but that seems rather clear, and the Ralls “appeal” appears to be a sure loser, unless someone comes up with a creative angle.
It probably doesn’t need to be said, but just because you sue someone, that doesn’t mean that you are supporting the rule of law:
If it is a signal that Obama wants to send to Chinese investors, it would be a very bad one. Investors may rethink their decisions if their assets are handled without legal basis or business logic.
Bashing Chinese companies in the name of “national security” betrays the US spirit of openness.
Resorting to law shows Chinese companies’ confidence in safeguarding their own interests.
Wu Jialiang, Ralls’s chief executive and a Sany executive, said Sany launched the suit because it trusts the US legal system.
If Sany wins the case, it will be good news even for the American people, as it will prove that the US remains a country governed under the rule of law. If Sany loses, many Chinese entrepreneurs may be more wary about future investment in the US.
Oh, please. I don’t like the result in the Ralls case either, but the president undoubtedly has the authority to make that decision. I’m glad to hear that Sany trusts the U.S. legal system so much; too bad it doesn’t trust its U.S. legal counsel more, as I expect that person is probably advising that the suit should be dropped.
I tend to get annoyed when an entire legal system is disparaged because someone doesn’t like a specific case, particularly when the critic is an interested party! I remember when everyone in the U.S. condemned the judicial system there because of the infamous McDonald’s “hot coffee” litigation. The whole thing was remarkable in its stupidity. Similar things are said about China’s legal system whenever there is a high profile criminal case involving a government official. No, says I, those are individual cases and shouldn’t be used to condemn the entire system.
The Ralls decision might have been unfair, and you may not like the treatment of Huawei and ZTE, but I think it’s time to move on.