July 17, 2005
-
American Posturing on China
I like net articles. Thanks to my friend Shaw for forwarding to me.
Comment & analysis / Comment
American posturing on China is short-sighted
By Maurice 'Hank' Greenberg
Published: July 17 2005 19:15 | Last updated: July 17 2005 19:15
Suspicion of Chinese intentions is undermining a rational approach to
doing business with China. CNOOC's $18.5bn all-cash offer for Unocal,
the US oil company, has prompted concerns from some business leaders
and politicians in the US, particularly those alarmed by China's rapid
economic growth and growing power. Yet its offer is clearly good news
for shareholders – since it is more generous from a financial point of
view than competing offers.
The rhetoric from Washington is increasingly shrill and several bills
in Congress threaten arbitrary sanctions on Chinese products. This is
short-sighted and wrong.
Given the size of our countries and the complexity of our bilateral
agenda, individual issues will constantly arise. But it is not in US
interests to allow these issues to detract from the overall
relationship. America cannot advocate a global marketplace when it
suits it and raise barriers when it does not. Consistency in both the
conduct of foreign policy and the maintenance of economic
relationships is essential to achieving our national objectives. A
great nation practises what it preaches.
Not too long ago, Japan occupied a similar place to that of China
today. Critics complained that Japan was buying real estate in the US
at prices at which American companies could not compete. But look what
happened. US companies bought back many of the same assets at a
fraction of the price. The market ultimately determines economic
values; governments typically cause distortions and inefficiencies in
the free movement of capital.
Yet China is nowhere near where Japan was – or is – in acquiring US
assets. In 2004, Chinese companies accounted for only $490m of US
direct investment out of total foreign investment in the US of
$1,500bn. US companies have nearly $350bn in cumulative direct
investments in China, which far exceeds the amount that Chinese
companies have invested in the US.
The benefits to the US of a healthy and constructive relationship with
China are too important to be put at risk by a modest-sized commercial
transaction such as the Unocal deal. America's relationship with China
may be its single most important bilateral relationship in the world
today. It encompasses a broad array of important economic and security
issues. These include trade and currency valuations, the North Korea
problem and transnational threats posed by terrorism, environmental
degradation and the spread of disease, among many others. Moreover,
China encompasses one-fifth of the world's population and is an
enormous, still largely untapped, market for US goods and services.
China and the US need each other. China is an important creditor to
our debt-laden economy, having purchased more than $230bn in US
government securities. Without this, the US would have been forced
long ago to raise interest rates, thereby choking off its own economic
recovery. Significantly, Chinese manufactured goods have kept prices
low for American consumers, helping to keep inflation in check.
China still has much to learn from the west. Chinese businesses need
western technology and expertise. And China needs to accelerate legal,
regulatory and bureaucratic reforms to maintain economic growth and to
realise fully the ambitions of its people.
But confrontation is not the right way to advance US interests. In
1975, I began what turned out to be a 17-year process of cultivation,
negotiation and persuasion to secure an insurance licence in China for
American International Group. As a result, in 1992, AIG was the first
foreign insurer to open for business in that country and now is the
one of the leading foreign insurers there. That success did not happen
by accident. I studied the Chinese market, established strong personal
relationships and came to understand the unwritten rules of dealing
with China.
Three lessons stand out. First, we should resist the temptation to
engage in "public diplomacy". The Chinese speak politely in public and
save their most direct, outspoken comments for private meetings. In
North America and Europe, we tend to do the opposite, posturing in
public while being "diplomatic" in private conversations. That does
not work with China.
Second, reciprocity is essential. Each side must acknowledge the
other's interest. The Unocal bid, for example, reflects China's need
to secure its energy supplies and its desire to invest prudently some
of its large foreign currency holdings. There is nothing inherently
wrong with either objective and we must be careful in ascribing
nefarious motives to what should be considered a routine business
transaction.
Finally, be patient. The US-China relationship is unfolding at high
speed. In 10 years, China's exports to the US have rocketed from $35bn
to almost $200bn. The Chinese learn quickly but need more time for
essential reforms. I have no doubt that in another 10 years we will be
astonished by the progress the Chinese have made. That does not mean
that we should not pursue issues that affect core national interests
or values. But we should not let bumps in the road set off course a
critical bilateral relationship.
Like most nations – and most people – the Chinese respond to
sincerity, courtesy, respect and old-fashioned diplomacy. They do not
respond to posturing, threats or hypocrisy. They want to do business
with people and institutions who care about China and its people; who
give as well as take.
The writer is former chief executive of American International Group
Recent Comments