Chartwell: A Firm No to Chinese Government Takeovers of American Companies"

In a recent interview, Chartwell Americas President Carlton Delfeld laid out two principles that should guide Americas policy towards foreign companies interested in acquiring ownership and control of U.S. companies. The principles are openness to private investment in areas not affecting our national security and reciprocity in allowing American companies to invest in the potential buyers home country. These principles should be applied consistently and should not be aimed at any specific country. Given the recent controversy regarding high profile Chinese bids for American companies, Delfeld described how these principles should be applied to determine whether these bids are acceptable.

(PRWEB) June 28, 2005 -- In a recent interview, Chartwell Americas President Carlton Delfeld laid out two principles that should guide Americas policy towards foreign companies interested in acquiring ownership and control of U.S. companies.

The principles are openness to private investment in areas not affecting our national security and reciprocity in allowing American companies to invest in the potential buyers home country. These principles should be applied consistently and should not be aimed at any specific country.

Given the recent controversy regarding high profile Chinese bids for American companies, Delfeld described how these principles should be applied to determine whether these bids are acceptable.

First, he examined the issue of private versus government investment. Last months purchase of IMBs personal computer business was made by Lenovo, a Chinese state-controlled entity.

The bidder for Maytag is Haier, a state-owned and state-controlled entity whose CEO is on the ruling Communist Partys Central Committee. The Chinese bidder for Unocal is state-run China National Offshore Oil Corp. (CNOOC).

Delfeld noted that Americas policymakers have long encouraged China to privatize its state-owned and state-controlled companies and allowing these entities to gain control of U.S. private companies while still in state hands sends the wrong message.

Also, allowing a foreign government to gain control of U.S. companies is clearly not in our national interest and is contrary to Americas free enterprise tradition.

Lastly, state-controlled companies can easily access concessionary funding from their government and the transparency regarding the origins of capital flows is poor and can be easily manipulated.

In CNOOCs bid for Unocal, its parent, 100% owned by the Chinese government, supplied a $2.5 billion loan at a zero interest rate and a $3.5 billion loan at a 3.5% rate that is far below what it could arrange through private banks. This puts the rival American bidder Chevron at a distinct competitive disadvantage.

Despite Chinas public pronouncements since the late 1980s about its interest in privatizing state-owned and run companies, progress has been disappointing. Roughly 70% of the shares of the 1,377 companies listed on the Shenzhen and Shanghai stock markets are owned and controlled by the state.

Given these facts, a reasonable observer could wonder whether the Chinese government is really interested in having private total or even majority control of many of these companies, especially those operating in areas deemed strategic to Chinas Communist leadership.    

Next, Delfeld addressed the second principle; reciprocity. China has recently been more flexible in allowing foreign investment in Chinese companies but it should be noted that the Chinese government rarely allows a foreign investor to acquire majority control.

Just this week, Bank of America announced an interest in investing in state-owned China Construction Bank but even if it exercised all options, its stake would be less than 20% and its ability to exercise any management control is highly questionable.

China is interested in leveraging Bank of Americas brand, prestige and technical expertise but would never consider letting it take control of the China Construction Bank. Likewise, does anyone believe that Unocal or any other American energy company could ever purchase and take control of COONC? It would be inconceivable!

Delfeld emphasized the importance of private foreign investment flows to spur U.S. and global growth and productivity: noting, If a purely private Chinese firm was making a bid for Maytag using private capital markets to finance its bid and if American firms could do the same in China, we should welcome the investment with open arms".

He noted that the U.S. should be hospitable to private foreign investment and that China has enjoyed more than $500 billion in private direct investment over the past 15 years and these investment flows have played a crucial role in its high economic growth rate.

Chinese officials have at times referred to the American democracy as moneybags democracy". Given the high degree of overlap between the Chinese government and Chinese big business, perhaps it would be apt to refer to it as moneybags communism".

Delfeld added that this foreign investment principles should not be seen as directed at China but would apply to other countries such as Russia that have a high proportion of large state-controlled companies.

Because of Chinas growing economic clout, there is a reluctance to confront it" said Delfeld, but on this issue clarity and firmness will actually improve relations between China and America and avoid case by case disputes and acrimony."

About Chartwell America
Chartwell Americas mission is to encourage policies that help make America more competitive in the global economy. It promotes policies that are aimed at expanding exports, capital investment, the creation of high quality jobs and improving American education. Chartwell America also supports foreign language study by funding programs using innovative software to convert school computer labs into foreign language labs.

About Carlton Delfeld
Carl is President has 20 years of experience in international investments and is currently President of the financial publisher and global investment advisory firm, Chartwell Partners. He was an advisor to the U.S. Congress and the U.S. Treasury on international investment issues and was a member of the U.S. National Committee on Pacific Economic Cooperation. Carl served on the Executive Board of Directors of the Asian Development Bank, is the editor of Asian Investor Intelligence and was a co-founder of Pacific Financial. He is a graduate of the Fletcher School of Law & Diplomacy, studied at Sophia University in Tokyo, and is the author of a new book The New Global Investor."

###