Subject: Re: The Chinese want to buy more American companies — and we should let them - The Washington Post
From: "James Bulger" <[email-masked]>
To: "Eric Schwerin" <[email-masked]>
Cc: "Hunter Biden" <[email-masked]>
Date: Mon, 4 Apr 2016 07:45:59 -0400

Damn good article Eric
Thanks for sending it to me
Jimmy

On Sunday, April 3, 2016, Eric Schwerin <[email-masked]>
wrote:

>
>
> https://www.washingtonpost.com/opinions/the-chinese-want-to-buy-more-american-companies--and-we-should-let-them/2016/04/01/ce4f811c-ef72-11e5-85a6-2132cf446d0a_story.html
>
> The Chinese want to buy more American companies — and we should let them
>
> China was poised to make its largest-ever investment in the United States
> this past week, after the Chinese insurance group Angbang topped Marriott
> in a bidding war for the Starwood hotel chain. The offer was extremely
> attractive: $14 billion in cash. But a chorus of skeptics urged Starwood to
> say no.
>
> “Who are these guys?” Bloomberg News anchor Tom Keene asked
> <http://www.bloomberg.com/news/videos/2016-03-29/will-marriott-lose-out-on-starwood-to-china-s-angbang>.
> “It’s the Butch Cassidy analysis here. I have absolutely no clue what their
> balance sheet is. I have no clue how they’re going to finance this puppy.
> And more than anything: What’s their link to the Chinese government?”
>
> Over at MarketWatch, columnist Tim Mullaney wrote
> <http://www.marketwatch.com/story/starwood-should-go-to-marriott-its-good-for-america-and-shareholders-2016-03-29>:
> “Anbang’s CEO is no less than the son-in-law of deceased former Chinese
> leader Deng Xiaoping. While still an also-ran in China’s insurance market,
> it has easily arranged changes in that nation’s regulations to let it
> invest more in asset management and offshore real estate. They couldn’t get
> better service from Beijing if they invited the Communist Party’s central
> committee to the wedding.”
>
> The deal also faced scrutiny from the powerful but obscure Committee on
> Foreign Investment in the United States (CFIUS), which is charged with
> assessing the national security implications of these sorts of
> transactions. Buying a hotel chain wouldn’t seem to present a particular
> threat. But Angbang’s purchase of New York’s Waldorf Astoria was reviewed
> <https://www.washingtonpost.com/business/economy/us-reviewing-waldorf-astoria-sale-to-chinese-firm/2014/10/13/8ebf1e80-50c8-11e4-babe-e91da079cb8a_story.html>
> in 2014. That deal ultimately got a green light, though the U.S. delegation
> to the United Nations moved its base of operations out of the hotel
> afterward.
>
> Unfortunately, we’ll never know what regulators would have made of the
> Angbang-Starwood deal. On Thursday, the Chinese company announced that it
> was withdrawing its bid “due to various market considerations.” The intense
> pushback certainly didn’t help — and it’s part of a troubling trend.
>
> Suspicion of Chinese motives is hardly new. After all, blaming China for
> America’s economic ills has been a theme of the past three presidential
> elections. But within the U.S. government and business community, there’s
> intensifying concern — ranging from wrong but reasonable to paranoid and
> hysterical — that China’s drive to invest in the United States is not
> benign.
>
> The far smarter response would be to embrace Chinese investment. Rather
> than being a threat to U.S. security, it’s the best way to reduce future
> tension.
>
> As China’s economy and reserves have grown, so has its appetite for
> investing abroad. According to the Rhodium Group
> <http://rhg.com/interactive/china-investment-monitor>, in 2006, China did
> 39 deals worth $195 million in the United States. By 2015, that had
> mushroomed to 171 deals worth $15.3 billion. And already this year, Chinese
> investors have completed transactions in the United States totaling more
> than $3 billion, with an additional $26 billion in the pipeline.
>
> China’s appetite encompasses multiple industries. The country’s State
> Council
> <http://english.gov.cn/premier/news/2014/12/24/content_281475028954646.htm>
> has encouraged companies to pick targets that will help “raise the
> international competitiveness of Chinese products,” among other goals.
> Noteworthy deals that have gone through this year include General
> Electric’s $5.4 billion sale of its appliance division to Haier and
> Hollywood studio Legendary Entertainment’s $3.5 billion acquisition by
> Dalian Wanda (which already owns AMC Theaters).
>
> But as Chinese deals in the United States have become more numerous and
> more ambitious, there’s been more resistance.
>
> Acquisitions involving Chinese investors represent the largest portion
> <https://www.treasury.gov/resource-center/international/foreign-investment/Documents/Annual%20Report%20to%20Congress%20for%20CY2014.pdf>
> — nearly 20 percent — of transactions reviewed by CFIUS, even though China
> still trails other countries
> <http://www.ofii.org/sites/default/files/FDIUS2014.pdf> in its direct
> investments in the United States. And members of Congress are pressing
> CFIUS to expand the scope of its reviews. For instance, Sen. Sherrod Brown
> (D-Ohio) wrote a letter
> <https://morningconsult.com/wp-content/uploads/2016/03/Brown-Lew-CFIUS-0323161-1.pdf>
> last month asking the committee to look at patterns of investment,
> ownership structure and “all possible mitigation measures to protect
> Americans.” Previously, Rep. Rosa DeLauro (D-Conn.) introduced a bill
> <https://www.congress.gov/bill/113th-congress/house-bill/5581> requiring
> regulators to assess economic and public health impacts.
>
> Beyond Starwood, this pushback has scuttled a number of high-profile deals.
>
> Last summer, security concerns prevented Tsinghua Unigroup, a state-owned
> semiconductor company, from buying memory-chip maker Micron Technology for
> $23 billion, which would have been the largest Chinese acquisition of a
> U.S. company by far. In February, another state-owned Chinese company bid
> $3 billion for Fairchild Semiconductor. That transaction fell apart after the
> Fairchild board
> <https://www.sec.gov/Archives/edgar/data/1036960/000119312516463934/d22910dsc14d9a.htm>
> “concluded that there is some non-negligible risk of a failure to obtain
> CFIUS approval.” Also in February, Tsinghua yanked its multibillion-dollar
> bid for hard-drive maker Western Digital after CFIUS decided to launch a
> review. “There was a strong feeling that the regulators were going to run
> the deal down,” a source close to Tsinghua told the Financial Times
> <http://www.ft.com/intl/cms/s/0/c235a154-da37-11e5-98fd-06d75973fe09.html#axzz44UtmPmLm>
> .
>
> It’s true that semiconductors and hard drives have some security
> implications. The deals nixed, though, didn’t involve ultra-sensitive
> National Security Agency equipment but rather mass-produced, commoditized
> technology. In theory, China could play Manchurian candidate with such
> technologies, but the Chinese government already has the capacity to
> disrupt the semiconductor supply chain through its own domestic factories
> and with its various cyberwar investments. It doesn’t need to spend tens of
> billions in foreign investment to acquire destructive capacity.
>
> Even deals that have at best minimal security implications have
> encountered stiff opposition. In February, a Chinese company’s planned
> acquisition of the Chicago Stock Exchange led 46 members of Congress to
> draft a letter to CFIUS opposing the deal
> <http://media.bloomberg.com/bb/avfile/r_Bcr9aJ.Gzk>. Separately, Rep.
> Robert Pittenger (R-N.C.), a member of the House Financial Services
> Committee, warned
> <http://www.foxnews.com/opinion/2016/02/23/rep-pittenger-chinese-bid-for-chicago-stock-exchange-must-be-fully-investigated.html>
> that “China has historically been the leading market and currency
> manipulator” and that control over an exchange would enable it to unleash
> havoc on the U.S. economy. He neglected to mention that fewer than
> 1 percent of all trades in the United States are handed by the Chicago
> exchange.
>
> Lawmakers were similarly incensed by a Chinese company’s effort to buy
> Smithfield Foods in 2013. It took months of lobbying by Shuanghui
> International to get regulator approval, amid concerns about theoretical
> contamination of the U.S. food supply. Those concerns largely missed the
> reason for the acquisition: to provide safer pork (produced in the United
> States) for Chinese consumers. If the motives were pernicious, there are
> far easier and more devious ways to disrupt the U.S. food supply.
>
> And in January, Dutch conglomerate Philips terminated a planned sale of
> its LED business for nearly $3 billion to Chinese investor GO Scale Capital
> “because of inability to resolve CFIUS’ unforeseen concerns
> <http://www.newscenter.philips.com/main/standard/news/press/2016/20160122-Philips-and-consortium-led-by-GO-Scale-Capital-terminate-Lumileds-transaction.wpd#.VvyIW4Q9XzK>.”
> While LED bulbs certainly make their way into military equipment, it’s a
> stretch to argue that national security issues were strong enough to kill
> the transaction — unless a new generation of bulbs would have come equipped
> with smart chips that could turn under-the-kitchen-cabinet lights into
> surveillance devices for the Chinese Communist Party.
>
> Instead of raising the battlements, the United States should adopt a
> policy that follows the old adage “keep your friends close and your enemies
> closer.” The best way to preserve American security and prosperity and to
> keep China’s aggression in check is not to resist China’s desire to invest
> but to encourage it.
>
> The more money Chinese companies pour into the United States, the more
> motivation China has to maintain good relations and the more it has to lose
> if relations turn sour. If you are Chinese President Xi Jinping, the scale
> of these investments and capital flows becomes a serious consideration
> every time you contemplate an overture to Russia, or policy toward North
> Korea, or whether to menace that trawler in the seas around Vietnam. It is
> a factor when assessing how to value the yuan, and how much to confront or
> accommodate the United States on issues ranging from tariffs to trade
> agreements.
>
> Consider that the last crisis in U.S.-China relations occurred in 2001,
> when a U.S. spy plane crashed
> <https://www.washingtonpost.com/news/worldviews/wp/2016/01/15/that-time-u-s-soldiers-were-detained-overseas-by-a-hostile-power-and-america-said-sorry-twice/>
> on Hainan Island and put tensions on high. It may be purely coincidental
> that nothing even remotely as incendiary has occurred since China joined
> the World Trade Organization in December of that year and began its foreign
> investment push. But it’s striking how the U.S.-China relationship — which
> has all the seeds of a serious and adversarial rivalry — has avoided any
> serious bouts of angry words, let alone retaliatory action.
>
> Economic ties may not guarantee peace and prosperity, but they do increase
> the incentives to negotiate differences and accommodate the needs and
> sensitivities of economic partners. That was the original intent, for
> instance, behind the creation of the European Union, which for all its many
> failures nonetheless helped end centuries of deadly conflict between the
> European powers.
>
> Somewhat surprisingly, in a presidential campaign season that’s been heavy
> on anti-China rhetoric, one person who seems to understand the benefits of
> Chinese investment is Republican candidate John Kasich. Speaking with ABC’s
> George Stephanopoulos last month, the Ohio governor extolled how a Chinese
> company has created jobs by setting up an auto-glass manufacturing
> operation in a previously shuttered General Motors plant. “I was just in a
> plant in Dayton, where we have a half-a-billion-dollar investment from the
> Chinese, and they’ve employed over 1,000 people there,” Kasich said
> <http://www.realclearpolitics.com/video/2016/03/13/kasich_touts_chinese_foreign_direct_investment_in_ohio_employed_over_1000_people.html>,
> adding, “I was intimately involved in bringing that to Ohio.”
>
> We need to make it easier for China to invest in America. Not only would
> it help invigorate domestic industries, but it would also provide a path to
> greater security. If instead we let our fears lead us to greater
> isolationism, we will surely lose.
>
> * Twitter: @zacharykarabell <http://www.twitter.com/zacharykarabell> *
>
> Read more from Outlook <http://www.washingtonpost.com/opinions>:
>
> Five myths about China’s economy
> <https://www.washingtonpost.com/opinions/five-myths-about-chinas-economy/2016/01/07/08a8d5e6-b4c4-11e5-a842-0feb51d1d124_story.html>
>
> Let China win. It’s good for America
> <https://www.washingtonpost.com/opinions/let-china-win-its-good-for-america/2016/01/14/bfec4732-b9b6-11e5-829c-26ffb874a18d_story.html>
>
> Follow our updates on Facebook <http://www.facebook.com/washpostoutlook>
> and Twitter <http://www.twitter.com/postoutlook>.
>
>
> Eric D. Schwerin
> [email-masked]
> <javascript:_e(%7B%7D,'cvml',[email-masked]');>
>
> Sent from my iPhone
>

-- 
James J. Bulger
Chairman
Thornton Group LLC
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