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Monday, March 5, 2012

Ireland can deal with China

Special to The Japan Times

HONG KONG — When China's leader-in-waiting Vice President Xi Jinping visited Washington, he was awarded all the paraphernalia of respect, with meters of red carpet, a gun salute, fanfare, glittering banquets, a meeting in the Oval Office with President Barack Obama that overran its time, plus separate sessions with the vice president and with the secretaries of state, treasury, defense, agriculture and commerce.

There was also a nervous edge. As Britain's Telegraph newspaper headlined it, Xi was "wined, dined ... and warned."

All the fanfare and respect in the world could not match the warmth that welcomed Xi on his next stop in Ireland, "cead mile failte" (a hundred thousand welcomes), as the Irish traditionally say.

Power-mongers in Washington should take a leaf from the Irish playbook if they wish to win friends and influence people in Beijing. This is not merely a political point, but economic advice — as one of America's most distinguished think tanks recently acknowledged.

David Marchick, managing director and global head of external affairs of the Carlyle Group, said in a policy memorandum for the Council on Foreign Relations that the visit of Xi to the United States offered a great opportunity to establish a new economic framework that could help to rebalance the global economy.

"Creating a positive framework will help mitigate the inevitable stresses on the U.S.-China relationship as leaders in both political parties sharpen their anti-China rhetoric during the 2012 U.S. election," Marchick wrote, advocating greater Chinese investment in the U.S.

China's outbound foreign direct investment has grown rapidly, but remains low by international standards, lower than that of tiny Ireland or Singapore. Historically, the U.S. has attracted about 15 percent of total outbound foreign investment, but receives a meager 2 percent of foreign investment from China.

There is big money at stake: If economic projections are correct, $1 trillion of Chinese foreign investment bucks are waiting to find a home by 2020. In the past two years, China has contributed 16 percent to the growth in global gross domestic product, and whatever happens, even if it suffers rebuffs along the road to becoming an economic superpower, it is going to be a mover and shaker of the global economy.

But looking at Xi's international red carpet debut in Washington and Ireland, one can only say "dream on" to Marchick.

Obama and the Americans stayed on the correct side of diplomatic protocol and accorded Xi with good "face" time. But what did Xi think as Obama, at their Oval Office meeting, looked at the television cameras, not at his guest, and reiterated that China must trade by the same "rules of the road" as the rest of the world, acknowledge the "aspirations and rights" of ordinary Chinese people, and live up to the "increased responsibilities" of a burgeoning economic power.

This was the message of a strict school headmaster to the new kid: "I'm in charge."

How relieved Xi must have been to land in Ireland, away from the hectoring and lecturing, and to be treated to a rich piece of old blarney when he visited a farm, where farmer James Lynch presented Xi with a newly born heifer named after him, and told him that he had brought the sun that melted the frost and revealed the Irish green of the grass. Who would you rather do business with — the bossy Americans or the sweet-talking Irish?

Although Ireland is small, it has a strong agricultural sector producing 10 times as much food as its own population can eat, and plans a rapid increase in dairy production when European milk quotas are abolished in two years (the heifer Xi will be ready to produce milk). Xi and Ireland signed agreements on trade, investment and education, which will boost their economic ties. Trade between the two countries was $5.5 billion in 2010.

Ireland hopes to expand its role as a center for high-tech research and as a base for European headquarters of international companies. Of course, Chinese help in the debt crisis would not go amiss.

Xi did not match the blarney but said he had been impressed by Ireland and its ability to weather the international financial crisis. His body language showed that he warmed to the Irish warmth.

In the larger scheme of things and the potential for Chinese foreign investment, Ireland will be a small player — though China will be important for it — and maybe Ireland will play an ice-breaking role for Beijing. With the U.S. there are difficulties in warming up the investment relationship with China, as Marchick rightly points out.

China's state-owned enterprises account for about 70 percent of the country's global outbound foreign direct investment. Most of them are, Marchick argues, "internally focused, risk-averse, and lack professional management capabilities to run complex international operations."

In addition, the need for Beijing's approval of specific overseas investments can slow down the process when speedy decisions are called for.

Smaller Chinese companies' dreams are often built round the next bigger city or province rather than on abroad, and they lack resources to venture into a potentially hostile foreign adventure. China's history, with the failed attempts by Chinese National Offshore Oil Corp. to acquire Unocal, and Huawei's problems with the Committee on Foreign Investment in the U.S. still fresh in Beijing's memory, has led many Chinese to believe they are not welcome in America.

There seems limited popular appreciation in the U.S. of the benefits that, Marchick says, new Chinese foreign investment would bring, notably "high-paying jobs, facilitating investment in research and development, strengthening the country's manufacturing base" and boosting U.S. exports to China.

Vice President Joe Biden in October stated plainly that he and Obama "see nothing but positive benefit" from Chinese investment. "It means jobs," he added.

But that message has certainly not gotten through to Republican China-bashing politicians. Chinese companies face constant hassles over visas, burdensome tax-reporting requirements and restrictions on real estate transactions that were adopted in the 1980s to stop the previous "yellow peril" — the Japanese — from buying up the American dream.

Marchick makes positive suggestions, including urging both countries to be more open to each other's foreign investment, encouraging U.S. policymakers to follow Biden's lead and examine and remove the irritants to Chinese investment, and advising private companies effectively to mentor Chinese ones through complex U.S. procedures — as IBM did for Lenovo in the 2005 sale of its personal computer division.

But given Obama's lecturing, who can be surprised if Chinese companies, ever hungry for natural resources, look to Africa, Latin America or the warm welcome of Ireland?

Kevin Rafferty is editor in chief of PlainWords Media.

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