In August 2005, because of growing US political resistance on national security grounds, the China National Oil Company (CNOC) withdrew its bid to purchase the US oil company, UNOCAL. In 2006, Dubai Port World dropped plans to acquire the Port of Miami because of similar fears in the Congress about national security vulnerabilities if the agents of an Arab state operated a major US transport hub.
But the walls that have protected US and European national security prizes, particularly some strategic assets and sensitive technologies, may be eroding given the desperate hunger for cash that so many deficit-plagued nations have today. The US has the “2007 Foreign Investment and National Security Act” in place as a tool to help drive Chinese investment into financing US debt rather than acquiring high-priced but national security-sensitive assets.
But Europe is another case — and may be the back door through which China gets the opportunity to exploit the fragility of the Euro zone and buy things that would have been kept out of China’s reach just a few years ago.
The best piece I’ve read that links the world’s wobbly financial mess
(well, the world minus China) to China’s national security technology
appetite is authored by Brown University International Political Economy
Professor Mark Blyth in the recent issue of Foreign Affairs.
In his piece, “China’s European Shopping Spree,” Blyth opens (in an article that should be read in full):
When Chinese Premier Wen Jiabao was on a tour of European capitals
last month, he stressed two things at each stop: that a stable eurozone
is vital to China and that China is Europe’s friend. Indeed, from
Beijing’s perspective, when it comes to Europe, self-interest and
altruism neatly coincide. If China were to buy only half of all
outstanding Greek sovereign debt (a bargain at around $220 billion, a
fraction of China’s dollar assets), it would not only resolve the
eurozone crisis and add to Chinese prestige but it would help give
Beijing the sort of reserve asset that it needs to diversify its
holdings out of dollars. Currently, 70 percent
of China’s reserves are in dollars, and China does not even make the
list of the top 40 holders of Greek debt. But why would China not take
such an opportunity?
For one, China probably has as little faith in the EU’s ability to
solve its debt crisis over the long run as do the rest of the world’s
financial markets, more bailouts notwithstanding. But another answer is
possible — one that links the 2008 financial crisis and the 2011
European bond market crisis to a possible Chinese end run around the
2007 Foreign Investment and National Security Act. This U.S. law makes
it hard for China to diversify out of its $3 trillion-plus holdings of
U.S. dollars and buy sensitive U.S. assets such as aerospace,
technology, and defense-related companies.
As a result of the unintended consequences of U.S. and European
actions in financial markets, there is now the possibility that, even
with this latest bailout, China could buy such sensitive assets from
Europe, at fire-sale prices.
Blyth’s EU-China scenario, which he admits may seem far-fetched to some and which is more developed in the balance of the article, makes a great deal of sense to me as China has demonstrated a high-octane strategic competence meshing economic and national security interests while the US and Europe’s strategic course in these realms has become more inchoate and blurry.
China is able to do today what the US did yesterday — which is to sequence and prioritize policy objectives across a great number of sectors and focus on achieving them, ignoring distractions, and not allowing events or passions to hijack national attention.
Today, the US, and I’d include Europe, are suffering from the lack of vision and strategy — unable to resist the next big intoxicating, contrived battle in Washington or the desire to take on yet another complex national security challenge (Syria comes to mind possibly) that is a distraction from the larger geo-strategic challenges of the day.
China stays on track — and the West seems to have gotten off at a rest stop and can’t chart its way back to the onramp.
— Steve Clemons is Washington Editor at Large at The Atlantic, where this post first appeared. Clemons can be followed on Twitter at @SCClemons