October 2nd, 2012
11:08 AM ET

Obama’s misguided China slap down

By Edward Alden, CFR

Editor's Note: Edward Alden is a senior fellow at the Council on Foreign Relations. This entry of Renewing America was originally published here. The views expressed are the author’s own.

President Obama has become the first president in 22 years to issue a formal order blocking a foreign investment into the United States on national security grounds. The decision, which denies the acquisition of a small Oregon wind farm project by a Chinese-owned company, will unfortunately be seen as yet another signal – this time from the highest possible level — that the United States does not really want Chinese investment. And for an economy still struggling to create jobs, that’s the wrong signal to send.

The action by Obama is the first presidential rejection of a foreign acquisition on security grounds since President George H.W. Bush blocked a Chinese aerospace company from acquiring Mamco, a Seattle maker of aerospace components. While many other potential transactions not involving Chinese companies have been withdrawn as a result of U.S. government security concerns, the formal decision by President Obama will reinforce Chinese fears that their acquisitions in the United States face an unfairly high level of scrutiny.

As David Marchick of the Carlyle Group wrote in a Renewing America Policy Innovation Memorandum earlier this year, “many Chinese executives believe the United States is unwelcoming of Chinese investment, even though the vast majority of Chinese investments in the United States have either been approved or have not required any approval.” The president’s decision will be yet another case to add to the political firestorm that ended the Chinese National Offshore Oil Corporation’s (CNOOC) effort to acquire Unocal Oil Company in 2005, or the brick wall that has greeted telecom giant Huawei’s U.S. acquisition bids.

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The timing could hardly be worse, coming just as Chinese reluctance to enter the U.S. market seemed to have ended. Indeed, the Obama administration has tried hard to lay out the welcome mat, aware of the potential economic benefits of expanded Chinese investment. According to the Rhodium Group, Chinese investment in the United States has surged in the past three years, though from a very small base. Over the past two years, there have been roughly 100 deals worth some $5 billion, compared with an annual average of just 30 deals worth $500 million prior to 2009. In the first six month of 2012, another $3.6 billion in deals were closed, including several large acquisitions such as Sinopec’s purchase of shale gas producer Devon Energy and more recently the purchase of AMC Entertainment by Dalian Wanda, the Chinese media conglomerate.

According to Rhodium, U.S. affiliates of Chinese-owned companies had 27,000 employees in 2011, up from just 10,000 five years ago. If the current pace continues, Chinese investment would likely create 200,000 to 400,000 U.S. jobs by 2020.

The particulars of the president’s decision will probably not matter in how it is perceived. It will certainly be hard to explain just exactly how Chinese ownership of a tiny Oregon wind farm poses any national security threat. Based on claims made through a rare lawsuit, the Treasury-led, inter-agency group that reviews foreign investment on security grounds – known as the Committee on Foreign Investment in the U.S. (CFIUS) – appears to have behaved in a particularly heavy-handed way.

The land that was acquired by Ralls, the Chinese buyer, is near a U.S. Navy base that is used as a training site for low-level military aircraft and weapons. According to the court papers filed by Ralls, the company had already agreed at the Navy’s request earlier this year to move part of the wind farm to a new location. But then CFIUS in July abruptly ordered the company to halt all construction on the property and barred Ralls from any further access to the site. It also effectively blocked the company from selling the property to another buyer more to CFIUS’s liking.

More details may emerge that help explain the president’s action (or may not given the secretive nature of CFIUS). But it’s clear that the whole business has been handled abysmally. If the location of the wind farm did indeed pose real security concerns, the U.S. government should have worked quietly with the company to help it find a reasonable way to divest. The transaction was far too small and inconsequential to have risen to the level it did.

Instead, by forcing a presidential action, it becomes a big, public slap down to another Chinese company. That is not in the economic interests of a country – the United States – that needs all the foreign investment it can get.

Originally published by the Council on Foreign Relations’ Renewing America initiative.

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Topics: China • Climate • Environment • United States

soundoff (26 Responses)
  1. Joseph McCarthy

    There goes Barack Obama showing his stupidity again. Doesn't this clown know that this idiotic decision will prevent thousands of people from acquiring news jobs? And doesn't he know that next to J apan, China owns a big part of our debt? We need to cement good relations with that country since without it, our economy would be far worse than it is currently! Don't let any right-wing idiot here try to tell you otherwise!

    October 2, 2012 at 11:26 am | Reply
    • Quigley

      Good posting, Joseph. Next to Afghanistan, this is the stupidest move Obama made!

      October 2, 2012 at 4:55 pm | Reply
      • j. von hettlingen

        I wonder why Obama intervened. The authour pointed out, "The transaction was far too small and inconsequential" to have gained the attention of a president. Perhaps he had been misguided by the Committee on Foreign Investment in the U.S. (CFIUS).

        October 3, 2012 at 8:20 am |
    • truer truth

      @ Joseph – You complain about this but also complain about being bough up by China? Typical Repubelicker. You are NOT smarter than a 5th grader.

      October 5, 2012 at 11:42 am | Reply
  2. Sean

    China blocks several sectors from foreign investors. Foreign investors are finding it increasingly difficult to invest in China. Forget foreign investment, many sectors in China are not even open to domestic private investors. if China can be so closely guarded, why does the US need to be so magnanimous? China needs to realize that you cannot have your cake and eat it as well. You want to invest abroad? You are welcome. Let foreigners invest in your country too. You cannot clap with one hand.

    October 2, 2012 at 11:54 am | Reply
    • Pearl

      Your logic doesn't make up. You see, that is the whole point of difference between a democracy and non-democracy. Even though chinese love money and investment, huge part of their market is still state controlled. However, China is being more capitalistic than ever, even more than the US has been. Also, foreign investments are always overlooked by governments, just like the US showed with CFIUS. As you said, some sectors are not even open to chinese domestic investors itfp, why the heck would it be open to foreigners at all? It is getting difficult to invest in China, yes, but not completely impossible as China is the World's 2nd largest economy, the US' biggest trading partner and creditor.

      October 2, 2012 at 5:54 pm | Reply
    • marc

      Are you serious? Or just seriously unknowledgeable. The amount of direct FDI from us to china is staggering. In other words, they do not inhibit by and large foreign investment into their country. You are right about certain sectors but then you proceed to extrapolate to the whole and conclude from this false extrapolation.

      October 2, 2012 at 6:03 pm | Reply
    • the truth

      So wait, you want US companies to move overseas? Wow, typical liberal. you talk about rommey outsourcing and you want all US jobs to go over there. Pathetic

      October 5, 2012 at 2:01 am | Reply
      • true truth

        Now where do you see anyone claiming to be a Liberal? Idi-ot

        October 5, 2012 at 11:38 am |
  3. Robert Dale

    So you are saying that the sale of the wind farm was blocked because it overlooked a military base and that even before the Chinese firm was interested there was an agreement to move part of the wind farm at the Navy's request. But you say "The particulars of the president’s decision will probably not matter in how it is perceived." So we should not protect our interests because the you Edward Alden do not give the Chinese credit for not recognizing the truth when they see it? Grow up. Saying you can invest in the country but NOT in places where you can spy on our military is EXACTLY the right message to send.

    October 2, 2012 at 12:15 pm | Reply
    • marc

      The problem is we have military bases EVERYWHERE so we can pretty much use the lame catch-all excuse of national security everywhere. This could be done in a much more nuanced way, for example, monitoring their activity, or suggesting a site further out, but that would take away from our real motive – we racistly don't like them and we don't want them to succeed. (They let us invest A LOT in their country, and then when they want to here, we don't let them.)

      Don't believe me about the military bases everywhere? I'm near Fallon NV and the chinese wanted to buy a gold mine 50-100 miles away. In Sac we got Travis, in LV we got Nellis, at my old home we got Wright-Pat in OH, and Quonset in RI. Everywhere we live there's a military base nearby, oh and yes we need them, the last time someone invaded Ohio was just 10 years ago...

      October 2, 2012 at 6:04 pm | Reply
    • Pearl

      Who does spying in the traditional way you are suggesting these days? It is all about cyber espionage now. All they need is a computer, internet connection, and a skilled hacker, which are employed in the thousands by them FYI.

      October 2, 2012 at 6:13 pm | Reply
  4. Robert Dale

    It is you that is "Misguided."

    October 2, 2012 at 12:16 pm | Reply
  5. UHHH

    *Sigh* The American government thinks everything's of national interests... It's wind farm, not a military base -_-
    The American economy would make a U turn if the government allowed it to sell more tangible items, such as high tech equipments to China or Asia in general... instead of military weapons.

    True, the Chinese government does restrict foreign investors but it beat's the US strategy of blocking them completely.
    restriction >>> blocking, since the investment may be limited but there, where as blocking no contract and no investment.

    October 2, 2012 at 12:27 pm | Reply
  6. 100% ETHIO

    The pre-arrangement was done by Jewish-American lobists, who sold American Nuclear components to China, at the past.

    Since the Jewish are involved on all aspects of American values-with double standard, Americas strength will get weaken.

    What is Christianity for Jew?
    They complained about KKK,.....

    October 2, 2012 at 12:57 pm | Reply
  7. Alan Beasley

    So blame Bush for the costs – give Obama credit for the result?

    The media tried to "cover" for Carter and Clinton – we all know Carter was inept and Clinton was Impeached

    Hearing Obama say HE decimated the terorists globally is a JOKE!

    What was he doing from 2001 – 2009? Video Games? HELLO?

    90% were decimated by 2006!

    Why is Obama not called on it?

    Think about it – all the costs, and the tools put in place by Bush that actually decimated al Qeada (many Obama voted against) – the "unfunded war" the left calls it –

    So blame Bush for the costs – give Obama credit for the result?

    October 2, 2012 at 5:14 pm | Reply
  8. Ronald

    With such a clueless president, the economy will continue to tank.

    October 4, 2012 at 1:32 am | Reply
    • true truth

      @ Ronald – you complain about this while at the same time complain that we are being bought by China. Repubelicans are NOT smarter than a 5th grader.

      October 5, 2012 at 11:40 am | Reply
  9. thumbs up

    Obama did the right thing.

    All of you clamoring for money and trade with China should realize the parasitic rather than symbiotic nature of the relationship. The smiling dragon has teeth.

    October 6, 2012 at 10:22 am | Reply
  10. Dave

    Reid pressures NV Energy to back Laughlin solar project

    WASHINGTON – Sen. Harry Reid on Monday applied pressure to Nevada's chief electricity provider to get behind a $5 billion solar project that a Chinese company wants to build near Laughlin.

    ????? I guess Obama missed this one along with CNN?? Oops.......

    October 6, 2012 at 9:54 pm | Reply
  11. 0rangeW3dge

    "Chinese telecom firms Huawei and ZTE pose a security threat to the US, a congressional panel has warned after an investigation into the two companies." - BBC -8 Oct '12

    October 8, 2012 at 4:21 am | Reply
  12. op

    Open market! (ROFL)

    October 8, 2012 at 4:24 am | Reply
  13. Nanson Hwa

    " If we can't control a country militarily, we'll control it financially." John Foster Dulles, Former Secretary of State.

    October 14, 2012 at 5:39 am | Reply
  14. mad.madrasi

    What about cybersecurity? The way Chinese cybergangs, allegedly sponsored by state parties, operate, all China has to do is wait till US develops the technology and then either buy it openly or steal the secrets overnight.

    So maybe the author is right. It would be better to sell the company and make some money, rather than slap the Chinese offers down and be cyber mugged.
    monkeyshine nutworks

    November 13, 2012 at 2:01 am | Reply
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