Foreigners want America’s public assets
It seems like foreign governments and corporations are craving U.S. public assets like toll roads, electrical grids and railways. In the case of our largest creditor, the Chinese government, they don’t want any more U.S. Treasuries, but they do want to own the hard assets that comprise our nation’s infrastructure.
China may channel part of its huge pool of foreign exchange reserves into investment in U.S. infrastructure, including rail and transportation networks, Commerce Minister Chen Deming said on Friday.
“China is unwilling to take on too much U.S. government debt. We are willing to turn that money into investment,” he told U.S. Ambassador to China Gary Locke and U.S. businessmen.
Chen did not elaborate on how China might channel some of the country’s war chest of $3.2 trillion foreign currency reserves to invest in U.S. infrastructure, such as rail and transportation systems.
What the Reuters reporter didn’t mention was that the Obama administration has been urging such investment on the part of the Chinese since their state visit last January, if not before. From the Wall Street Journal:
Key Chinese companies are considering stepped-up investment in the U.S., particularly in infrastructure, and the White House is encouraging them to move ahead.
The prospects for fresh Chinese investment were discussed at a meeting last week between Chinese business leaders and the American and Chinese presidents during a state visit to Washington.
At the meeting, President Barack Obama and the head of China’s Investment Corp. [CIC], the country’s $300 billion sovereign-wealth fund, talked about the Chinese investing in infrastructure projects in the U.S.
“The United States is open for investment and would welcome it,” Mr. Obama told the group, which included four Chinese CEOs, 14 American CEOs and Chinese President Hu Jintao.
Last fall, a CIC official said the fund would be interested in financing U.S. infrastructure projects as a passive investor, not as a majority owner.
“We are advocating that the U.S. government start a program to invest a massive amount of equity, in the form of public and private-equity partnership, in U.S. infrastructure,” Zhou Yuan, head of asset allocation at CIC, said at a conference in New York in October.
It’s a good stance for our President to encourage foreign investment. But is it such a great idea for foreign firms to own our most vital infrastructure? In 2006 an enormous controversy rocked Washington when a private firm from Dubai was negotiating a deal simply to operate 22 U.S. ports. A bipartisan opposition centering on national security eventually emerged and killed the arrangement.
If the Chinese government wants to invest in U.S. infrastructure, the best place for them to do so is the municipal or corporate bond market where they can buy bonds in water and sewer systems, among other infrastructure assets. Direct ownership, even through public/private partnerships, shouldn’t be allowed. Again, national security concerns must be paramount when it comes to our infrastructure.
China has a massive trade surplus with the U.S., and many corporations and investors around the world want to own our public assets. Because there is so much interest, we can choose how we structure their participation in our system. Generally, it should be as limited as possible, and certainly foreigners should never be allowed to participate in any form of national infrastructure bank scheme. If they want to invest here, they must bear the risk of that choice.