'Security', Last Refuge of Yank Trade Scoundrels

You've got to hand it to the Americans in the having your cake and eating it too department: While asking the rest of the world to economically open up, it has been far more guarded when it comes to accepting FDI from...certain other nations. I of course speak of China. With still-gargantuan trade balances in favour of China in the US-China bilateral relationship, all those trade proceeds gained by the PRC must go somewhere. In the past, the Chinese have been famously content to plow these proceeds into Treasuries, but their patience (and gullibility) is not infinite. First, returns on American sovereign debt are at record lows due to market predictions of subpar US economic growth practically into perpetuity. Second, Chinese citizens are rightly concerned about their government sinking their blood, sweat and tears into such lousy investments.

On the other hand, the US has famously been guarded about the Chinese buying more and more of America through FDI. Is it repeatedly invoked national security at stake here, or is it simply protectionism? Just this May at the biannual Security and Economic Dialogue (S&ED), Treasury Secretary Tim Geithner tried to explain that the US is now more welcoming of Chinese investment after years of run-ins over security concerns:

We welcome these changes, as well as the recent increase in Chinese business investment in the United States, the closer integration of our two economies, the greater role assumed by China in the IMF, the World Bank, and other international institutions.

That sounds great and everything, but Geithner does not seem to have made tangible changes in the China-sceptic conduct of the Committee on Foreign Investment in the United States (CFIUS) which he heads and which decides on the legality of FDI in America. For instance, his boss President Obama recently blocked a Chinese energy concern from putting up a wind farm near a US military testing facility, ostensibly on (surprise!) national security grounds--the first time a sitting president has forced divestiture in 22 years. In response, the Chinese firm in question is suing over due process:

A Chinese-owned company that has been blocked from building wind farms near a US navy test site in Oregon plans to sue President Barack Obama, arguing that his order to stop the project was unconstitutional. Ralls, a company owned by two Chinese executives, believes the president violated constitutional protections on property ownership and legal process. The company is seeking to have the order overturned, or be paid compensation for its losses. A person familiar with the case said: “The president is not above the law, even if national security is involved...”

Mr Obama issued an order compelling the company to sell within 90 days four wind farm sites in Oregon, and to clear all its equipment and structures off the sites within 14 days. He also asserted the right to interview Ralls’ employees and advisers and to inspect its documents and computer records in the US, to ensure that the order had been carried out in full. The statement said: “There is credible evidence that [Ralls] . . . might take action that threatens to impair the national security of the United States,” but gave no further details.

So yes, there is more than just a little political risk from expropriation involved when investing in America--especially if you have the misfortune of being Chinese. Just today, however, things got even worse. Chinese telecoms gear manufacturers Huawei and ZTE have long been under US scrutiny [1, 2, 3, 4] over their closeness to state apparatus (as if this fact is unusual among LDC firms). Supposedly, their equipment may be tampered with in Stateside to accommodate state-sponsored snooping. Finally, American congressmen have done the inevitable in labelling them as clear and present security threats:

A Chinese telecommunications giant that has been attempting to expand in the U.S. poses a national-security threat and may have violated U.S. laws, according to a congressional investigation. The year-long investigation by the House intelligence committee concluded the firm, Huawei Technologies Inc., and a second firm, ZTE pose security risks to the U.S. because their equipment could be used for spying on Americans.

In a report to be released Monday, the committee recommends that the U.S. block acquisitions or mergers involving the two companies through the Committee on Foreign Investments in the U.S. It also recommends that the U.S. government avoid using equipment from the firms, and that U.S. companies seek alternative vendors for telecommunications equipment.

 As with the Ralls wind farm case, it would have been nice if the Yanks provided evidence of the nefarious activities of these firms, but none is again forthcoming:

The 52-page report, which is unclassified, doesn't include evidence showing either company's equipment has been used for spying. But it says some companies in the U.S. "have experienced odd or alerting incidents" involving Huawei or ZTE equipment, although it provides no details. The report said a classified annex includes information that adds to concerns. 

Doesn't it seem odd that a country that keeps pillorying China for its lack of transparency and rule of law ignores those very same things when it comes to Chinese investment in the US? At the end of the day, it is hypocrisy about free trade and the lack of due process which are most striking from the way Americans treat others via unsubstantiated accusations.

UPDATE: Well no @#$%. Huawei decries all this "China-bashing," while ZTE is mounting campaigns worldwide to counteract this exercise in character assassination. Their next step is to lodge a complaint with the PRC itself.