That's the view put forward by former president of the US-China Business Council, Dr. Robert Kapp, in an article published in the National Bureau of Asian Research.
Dr. Kapp says that despite a relatively small level of foreign investment in the US, China's growth capacity is critical to improved relations.
Presenter: Liam Cochrane
Speaker: Dr. Kapp, China consultant based in Washington State, USA and former president of the US-China Business Council
KAPP: Liam, it's insignificant in terms of the total amount of foreign investment in the United States. It's a little more significant in the sense that over the last five years or so, the usual sources of FDI come into the US, Europe and so forth that have been pretty stagnant, but Chinese investment is growing a lot. And it's particularly significant or at least potentially so for symbolic reasons, given everything else that makes Americans so aware of China these days, as I'm sure Australians are, its size, its growing ability to affect the way the world economy works and so forth. So even though the numbers are small, it's a sort of a flagship for a fleet of uncertain dimensions which Americans look at with great interest, but also with some concerns.
COCHRANE: Now, you've drawn the parallel in your article with Japanese investments in the US three decades ago. What potentially could US policymakers learn from this recent history?
KAPP: Well, that's a good question Liam. What I try to say in the article and what I certainly think is that we can't go too far in identifying the one with h the other what makes them both, what links them both is a sense of foreboding bordering on sometimes on hysteria, depending on whom you talk, among Americans looking at Japanese investment in the 70s and early 80s and some Americans looking at Chinese investment over the horizon today.
When the Japanese bought Rockefeller Centre and the Pebble Beach Golf Course, everyone said that's it, they're taking over the world, and, of course, it all turned out to be nonsense. But the differences are bigger than similarities in other ways. The Japanese came to the American market generally speaking with things they had developed themselves that were, frankly, better than what we could do here, cars being the classic example. And they therefore, they arrived to essentially conquer the US market with their own products. I'm speaking very generally, obviously.
The Chinese are in a different situation. They come to the United States with very few world beating products or world renowned brands as we all know, but they've got a lot of money and they are looking for ways of moving ahead rapidly into world level competition for their companies and in many cases, by acquiring foreign companies, for example, American companies that have very strong technological assets that they might want, as well as the usual aspects of getting, getting familiar with the market and learning how to sell to Americans and how to navigate the legal and other environments here. So the similarities between China and Japan are not all that enormous, but I guess if there was no lesson to draw from it, it would be don't get so wrapped around the axel in the excitement of the moment about the fact that the Chinese are coming over the horizon, that you forget they have their own liabilities and their own weaknesses and their own disadvantages that they have to deal with as well, as did the Japanese it turned out in the aftermath of the big excitements of the 70s and early 80s.
COCHRANE: I guess some of those weaknesses and liabilities of the Chinese companies who are looking to get into the US are their reputation for whether fairly or unfairly for abusing workers' rights, for financial misrepresentation, for stealing intellectual property. These are unfortunately some of the things that the Made in China brand has become associated with. What sort of efforts are going on within China to try and change that reputation and make their foreign investors a little bit more palatable?
KAPP: Liam, you're absolutely right. In fact, and I don't know whether this is true for Australians. I have a hunch it is. But the United States looks at a flood of products and everything else coming from China with a mixture of anticipation and uneasiness. When things cost less at the major, at the retailers for people of limited income in this country, they may not say, oh, thank heaven, China's selling us their goods, but in fact, it is good for Americans and I think Americans to some extent understand that the advent of China as a supplier of goods to the United States, has, in fact, meant that a moderation in fact, diminution in some of the cases of the costs of retail goods and so forth and so on.
On the other hand, not only is they're product safety, which I think is a big, big deal in this country. When your golden retriever keels over because of contaminated pet food sourced from China, that goes very deep.
COCHRANE: You mean it's your baby from melamine milk formula, it's even more serious?
KAPP: Right, right. I have a kind of a longstanding file in my draw called the China Tide Syndrome, which I've kept for years, and years and years and it has to do with a sort of an element in the American subconscious going back into history, that China is a sort of a fountain head of noxious emanations that sort of sweep over our shores and cause our way of life to be endangered. It goes deep, it's not always on the surface and when something like a product safety scare comes along, I think it exacerbates that in some peoples minds.
The other thing is, not only the intellectual property problem, which is again very widely understood in this country, but this most recent flap which is still unfolding about, about whether the standards that American stock exchange regulators require of any company that is listing on a US exchange, be followed, in the case of Chinese companies, when the work books of the auditors of those Chinese companies are declared state secrets by the PRC. So the companies says we can't give you the work books, because we'd be violating the national state secrets law in China and the Americans say, if you don't give us those work books, who can we ever know whether or not you are fraudulent as so many companies have been in their listings, in their post-listing behaviour on the US markets.
So for all of these reasons, you're absolutely right. China Inc as you will does not smell very good here.
On the other hand, individual companies have in fact, a few of them, have begun to do very well, mostly by their own efforts, efforts of some bureau of the Chinese Central Government, but by their own efforts and you know the names as well as I do. Lenovo is a classic example, Haier, which make all sorts of refrigerators and little iceboxes for kids dorms rooms at college and so forth. Haier is doing fine and there are a few others and there will be more in the future. But remember, a lot of the FDI coming into the United States is not so much in manufacturing brands as it is in other areas, some of it is energy, there have been some major deals with energy companies here and, of course, the big one which is still awaiting final US government approval or disapproval is the Chinese, the China National Offshore Oil Corporation purchase of Nexen, a Canadian company. The Canadians have already approved the deal, but because the company Nexen owns substantial properties in the Gulf of Mexico, the security elements of that are now under review by the United States government. So energy is the second sector.
And then there are things like movie theatres, a big, big movie chain has been purchased by a private non-governmental company in China. So in individual cases, companies have made their move and I think in some cases, have adjusted without notice and in some cases, they will begin to assert themselves as they succeed more fully.
The big problem, and I don't want to answer this question at such length that we go off the air. But the big problem is the state-owned enterprise problem and I'll leave it to you as to whether we continue with that.
COCHRANE: Well, I'd actually like to take us in a different direction, because I think our listeners do understand the issue with state-owned enterprises and the difficulties inherent in that. What I want to ask you just finally and perhaps a bit more broadly. There's an obvious benefit that nations have when they trade with each other as far as they're respective economies and the sort of superficial dealings that the individuals involved have with the other countries. But it seems that you're making the point in the article that there is a much greater sort of trust building, I suppose, that can happen in terms of trade. Can you perhaps talk to that?
KAPP: It's probably because of my many years at the US-China Business Council that I still think that way. I left the Council some years ago, but I was sort of the representative of a very, broad American business community mostly consisting of large American companies with a lot going on in China. But I actually really do believe that the deepening of the business relations and the working out of the problems and the managing of the cross cultural issues and the linguistic issues and the legal and regulatory problems and the social behaviour problems that is the sort of normal fair of serious business between China and any other country, certainly China and the US is good for overall relations. I made the point in that article that US-China relations even after 30 years since we established diplomatic relations or 25 or whatever it is, 23, 24 are broad, but not very deep yet and some of that is inevitable. I mean I'm not optimistic that we're ever going to have the kinds of relations with China that we have, for example, with the UK or for that matter with Australia. There's just too many shared or unshared elements in these relationships to pretend that they're all going to be of equal depth ever. But the United States has a long way to go and with China and vice-versa in terms of building a kind of an instinctive, experienced-based ability to deal with one another and to understand what they other side means when they talk or act and to respond appropriately to it. And business, I think, has shown over time probably the best single channel for developing that kind of understanding that we have. There are a lot of ways as you know in which strategic distrust or mistrust characterises the US-China relationship now, particularly the international security sector. My hunch and I hope it's not self-deluding. My hunch is that if more Chinese investment does begin to move into the United States and it does well and the people behind it adjust to the American market and learn how to be essentially good corporate citizens in the United States, that will be good for US-China relations. People will come to understand that China is not some kind of mythical dragon on the other side of the horizon, but rather a partner, a neighbour, if you will in a small world. And I don't want to get to dreamy about it, but I really think that this can be a way in which the two sides at the local level, at the community level, at the state level and then ultimately at the congressional level where so much of the problem is in our country, the two sides can understand that there's a lot that they can and must do together.