[Paleopsych] NYT: Krugman: The Chinese Challenge
checker at panix.com
Mon Jun 27 23:56:09 UTC 2005
The Chinese Challenge
Opinion column by Paul Krugman, New York Times, 5.6.27
Fifteen years ago, when Japanese companies were busily buying up
chunks of corporate America, I was one of those urging Americans not
to panic. You might therefore expect me to offer similar soothing
words now that the Chinese are doing the same thing. But the Chinese
challenge - highlighted by the bids for Maytag and Unocal - looks a
lot more serious than the Japanese challenge ever did.
There's nothing shocking per se about the fact that Chinese buyers are
now seeking control over some American companies. After all, there's
no natural law that says Americans will always be in charge. Power
usually ends up in the hands of those who hold the purse strings.
America, which imports far more than it exports, has been living for
years on borrowed funds, and lately China has been buying many of our
Until now, the Chinese have mainly invested in U.S. government bonds.
But bonds yield neither a high rate of return nor control over how the
money is spent. The only reason for China to acquire lots of U.S.
bonds is for protection against currency speculators - and at this
point China's reserves of dollars are so large that a speculative
attack on the dollar looks far more likely than a speculative attack
on the yuan.
So it was predictable that, sooner or later, the Chinese would stop
buying so many dollar bonds. Either they would stop buying American
I.O.U.'s altogether, causing a plunge in the dollar, or they would
stop being satisfied with the role of passive financiers, and demand
the power that comes with ownership. And we should be relieved that at
least for now the Chinese aren't dumping their dollars; they're using
them to buy American companies.
Yet there are two reasons that Chinese investment in America seems
different from Japanese investment 15 years ago.
One difference is that, judging from early indications, the Chinese
won't squander their money as badly as the Japanese did.
The Japanese, back in the day, tended to go for prestige investments -
Rockefeller Center, movie studios - that transferred lots of money to
the American sellers, but never generated much return for the buyers.
The result was, in effect, a subsidy to the United States.
The Chinese seem shrewder than that. Although Maytag is a piece of
American business history, it isn't a prestige buy for Haier, the
Chinese appliance manufacturer. Instead, it's a reasonable way to
acquire a brand name and a distribution network to serve Haier's
growing manufacturing capability.
That doesn't mean that America will lose from the deal. Maytag's
stockholders will gain, and the company will probably shed fewer
American workers under Chinese ownership than it would have otherwise.
Still, the deal won't be as one-sided as the deals with the Japanese
The more important difference from Japan's investment is that China,
unlike Japan, really does seem to be emerging as America's strategic
rival and a competitor for scarce resources - which makes last week's
other big Chinese offer more than just a business proposition.
The China National Offshore Oil Corporation, a company that is 70
percent owned by the Chinese government, is seeking to acquire control
of Unocal, an energy company with global reach. In particular, Unocal
has a history - oddly ignored in much reporting on the Chinese offer -
of doing business with problematic regimes in difficult places,
including the Burmese junta and the Taliban. One indication of
Unocal's reach: Zalmay Khalilzad, who was U.S. ambassador to
Afghanistan for 18 months and was just confirmed as ambassador to
Iraq, was a Unocal consultant.
Unocal sounds, in other words, like exactly the kind of company the
Chinese government might want to control if it envisions a sort of
"great game" in which major economic powers scramble for access to
far-flung oil and natural gas reserves. (Buying a company is a lot
cheaper, in lives and money, than invading an oil-producing country.)
So the Unocal story gains extra resonance from the latest surge in oil
If it were up to me, I'd block the Chinese bid for Unocal. But it
would be a lot easier to take that position if the United States
weren't so dependent on China right now, not just to buy our I.O.U.'s,
but to help us deal with North Korea now that our military is bogged
down in Iraq.
E-mail: krugman at nytimes.com
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