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Worldwide Locations

The China Investment Challenge

A bank clerk counts a stack of US dollars together with stacks of 100 yuan notes at a bank in Huaibei, China on May 20, 2010. (AFP/AFP/Getty Images)

A bank clerk counts a stack of US dollars together with stacks of 100 yuan notes at a bank in Huaibei, China on May 20, 2010. (AFP/AFP/Getty Images)

When it comes to China, the US does, of course, have legitimate reasons to worry about national-security issues. It was precisely to assess the impact of deals with countries like China on national security that Congress established the Committee on Foreign Investment in the US.

Even though relations with the US have improved, the People’s Republic is far from being trusted. Indeed, it is still unclear where China’s amazing evolution will ultimately lead, so it would be naïve for American leaders to assume that China’s intentions will always be friendly and constructive, or that the two countries are inevitably destined to grow closer.

Nonetheless, this most recent spurning of Chinese efforts to invest in the US comes at a time when capital-poor and job-scarce America (where unemployment is over 10%) could truly benefit from more receptivity to investment from capital-rich China.

Consider a few facts. According to The Wall Street Journal, since December 2007, the US has lost 16% of its manufacturing jobs (many to China), leaving it with the lowest employment in this sector since before World War II. Of those workers still in the private sector, almost 5%, or 5.5 million, are employed by global companies whose headquarters are abroad. These same companies not only pay higher salaries than their American counterparts, but account for 11.3% of capital investment in the US and provide 14.8% of its private-sector R&D.

Given this, one might think the US government would be actively courting Chinese investment, not scaring it away unnecessarily. If American officials do not begin to recognize the realities of today’s globalized world, the US may unwittingly (and self-destructively) find itself cut off from the kinds of new foreign investment flows that are sorely needed to revitalize its manufacturing and infrastructure sectors.

The bitter new reality is that the US and "old Europe" have recently edged closer to becoming "developing countries." Indeed, it may be a painful recognition, but America's share of worldwide foreign direct investment is now half of what it was two decades ago. If the Obama administration and EU officials cannot figure out the proper mix between economic engagement and protecting national security, investment capital from China will go elsewhere. That is a strategy that will leave the US and the EU weaker, not stronger.

Orville Schell is Director of Asia Society's Center on U.S.-China Relations.