SAIC Stake in GM: Why Are We Even Asking Questions?

November 16, 2010

Shanghai Automotive’s plan to purchase a 1% stake in General Motors has been in the news in the past couple of days. Frankly, I’ve been waiting for the outrage, or the hand wringing, from American commentators bemoaning the possibility of a Chinese State-owned company getting its mitts on a U.S. corporate icon.

Not so much chatter thus far, which probably tells us something about how far GM has fallen with respect to “American icon” status. The bailout didn’t help matters much, I suppose. Moreover, this very small investment, which is being discussed by finance types amidst all the GM IPO talk generally, has probably scared off the usual politics folks.

I suspect, though, that all it will take is a carefully placed headline on The Drudge Report or a scary radio commentary by Glenn Beck to make this story pop right up there in terms of coverage. Not that I’m hoping for that, mind you. For me, the more that this kind of deal is seen as normal, the better for US-China bilateral foreign investment (and remember, FDI work still pays most of my bills).

As luck would have it, our old friend Gordon Chang at Forbes turned his focus to this topic in his latest column. He is characteristically non-judgmental, however, which I find disappointing. Perhaps his inner critic wants to speak out against the deal, but his brain keeps telling him there is no decent argument against the equity purchase?

Let’s have a look:

Washington, as a practical matter, could use Beijing’s money to pull off such a large offering.  But should China be allowed to buy part of the American icon?  There are reasons to say “yes.”

China, after all, will be essential to GM’s future.  This year, for the first time ever, the American company will sell more vehicles in China than in the United States.

Very even-handed. I would quibble with even asking the question whether China should be allowed to buy the equity, but that’s a minor criticism.

Chang concludes his “pro” section with a rhetorical shrug:

In any event, it’s hard to get worked up over China taking a single-digit stake in General Motors.  There are even some Americans who would say, if the Chinese wanted all the shares of the ailing carmaker, they could take them.  Better them than us.

Fair enough. But if this isn’t worth getting worked up over, and besides, the deal makes a lot of sense considering GM’s reliance on the China market, why does Chang then move on to the usual alarmist questions?

That’s not the end of the story, however.  Why not?  SAIC, better known as the parent of Shanghai Automotive, is a Chinese state-owned enterprise.  The Chinese business is not just another economic actor: it is an instrumentality of China’s one-party state.

And what is the significance of that?  Beijing, unfortunately, sees every economic advantage as a geopolitical tool, and it has demonstrated the will to use whatever weapon it has at its disposal.

I also can’t argue with any of that, at least generally. State-owned Enterprises (SOEs) do get certain marching orders from Beijing, although they are usually not nearly as specific as China critics like to believe.  What I do have a problem with, though, is the implication with which Chang leaves us.

Chang goes on to list a few recent dastardly deeds perpetrated by Beijing, including the rare earth restrictions. The implication is clear: China will, via its SOEs, do anything to win in the global economy. China wants a stake in GM. Therefore there must be a hidden stratagem at play here that is not necessarily in the best interests of the US.

Perhaps I’m reading too much into Chang’s column today, but that’s what I see. If Chang really believes this, then the US would be perfectly justified in reviewing (or to use Chang’s language, have a “national conversation” about) every single China outward investment deal to the US if it involves a State-owned Enterprise. In the case of companies like Huawei, even that SOE distinction apparently isn’t necessary to trigger scrutiny.

China critics these days, including Chang, bemoan China’s failure to abide by the rules of the international system. If the US were to raise the red flag (an apt reference in this case) for all of these kinds of deals, then it would certainly not be abiding by the spirit of the international system.

Then the question becomes why the US, and not its competitors, gets a free pass to make up the rules as it goes along?