2011 report to congress - U.S.-China Economic and Security Review ...

dkrause on DSKHT7XVN1PROD with $$_JOB59abroad. 192 This is attributable to the head start SOEs had in gettingapproval to invest abroad in the past and the dominance ofSOEs in natural resource acquisition deals. 193 These natural resourceinvestors, however, are less involved in China’s U.S. investment.Daniel Rosen and Thilo Hanemann of the Rhodium Groupconcluded in their research that between 2003 and 2010, 74 percentof the number of investment deals originated from privatefirms (which the authors define as having 80 percent or greaternongovernment ownership). 194 However, in terms of total dealvalue, the picture is reversed: SOEs account for 65 percent of thetotal. 195National Security Issues Related to Chinese Investment inthe United StatesThe close ties between the Chinese government and Chinese corporationsare relevant to Chinese companies’ attempts to providecritical infrastructure to the U.S. government or to acquire U.S.firms that either perform work for the U.S. government or defensecontractors that have intellectual property that would pose a nationalsecurity risk if obtained by a foreign government. ‘‘The realconcern—and it has to be case by case—is that many of these companiesare so closely intertwined with the government of Chinathat it is hard to see where the company stops and the country begins,and vice versa,’’ Democratic Senator Jack Reed (D–RI) hasnoted. 196 Investigating the national security implications of mergersand acquisitions falls to CFIUS. Among other issues, CFIUSconsiders two elements when evaluating whether an investmentwarrants an investigation: (1) whether there is state control of theacquiring foreign company, and (2) whether the transaction couldaffect U.S. national security. 197For China, the question of state control can be particularly complicated,because the government’s role is not always straightforwardor disclosed. Despite economic reforms and moves towardprivatization, much of the Chinese economy remains under theownership or control of various parts of the Chinese government.In addition to outright ownership or direct control, the governmentor the Communist Party can also exert control by deciding the compositionof corporate boards and the corporation’s managementteam. 198 To some analysts, these questions are beside the point:Mr. Rosen told the Commission at its March 30 hearing that allChinese companies were under the influence of Chinese government‘‘to a greater extent than firms are here.’’ 199In fact, the United States is relatively open to FDI, althoughsome high-profile Chinese acquisition attempts have raised objectionsthat have led to some investments being blocked or dropped.Most notable were the proposed investments by China NationalOffshore Oil Corporation (CNOOC) and two deals by Huawei (a bidfor 3COM and for 3Leaf).Despite some failures, recent investments, especially greenfieldinvestments (new ventures), have been made without significantopposition. In many cases, such deals have benefitted from stateand local government investment incentives. 200 For example,Tianjin Pipe is currently building a $1 billion steel pipe mill nearCorpus Christi, Texas, benefitting from a variety of state and localVerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00071 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464