For centuries, empires have relied on military might to invade and occupy foreign lands. China has taken a different approach to expand its footprint across the globe: investment. Over the last 20 years, Beijing has invested hundreds of billions of dollars in other countries, most notably through its Belt and Road Initiative (BRI), a global infrastructure investment campaign to build rail, road, and sea routes connecting the Red Dragon to Africa, Central Asia, and Europe. In the 21st century, the Chinese government has metastasized into a top national security threat for countries worldwide. Is it dangerous to become beholden to China and its promise of riches? Despite U.S. concerns, greenfield investment dollars could turn out to be a Mephistophelean bargain for cash-strapped states.
Seeing Greenfield
A greenfield investment is a foreign direct investment (FDI) by a business from outside the United States. In a globalized economy, this has become the new norm. An example of a greenfield asset would be BMW (Germany) or BP (United Kingdom) constructing facilities in the United States. While this type of commerce is a positive development in the international marketplace, a state-owned asset might be more vexing.
In recent years, China has been shipping state-owned enterprises (SOEs) throughout the U.S. economy. These government-supported organizations are financed by Chinese state banks and subsidized by the government. They are indifferent to turning a profit. Their primary initiative is to gain market access and technological control to advance Chinese interests and attain a competitive edge over their adversaries.
Since states are paralyzed by budget deficits, pension shortfalls, and declining capital, governors welcome greenfield investment with open arms. They typically go as far as extending a diverse array of incentives through local and state development efforts. In the case of China, taxpayers are potentially subsidizing threats to national security.
According to a new study by research and consulting firm Rhodium Group, Chinese businesses completed direct investments of nearly $5 billion into the United States in the first half of the year, up from $3.4 billion last year. Researchers warn that capital “flows are unlikely to recover in (the second half) amidst persisting systemic concerns and U.S. election politics.” In a separate Rhodium report, analysts noted that “capital expenditure from the ongoing greenfield constructions are baked in for the next few years,” so it is unlikely that there will be a massive decline in these investments.
Will the federal government take action? So far, only one senator has addressed the brewing threat.
‘You Are Being Worked’
The U.S. government recently expanded the powers of the Committee on Foreign Investment in the United States (CFIUS) to review and prevent investments by foreign companies that might threaten America’s national security. The reform to the Foreign Investment Risk Review Modernization Act (FIRRMA) failed to include greenfield investments, despite Secretary of State Mike Pompeo sounding the alarm during a speech to the National Governors Association in February.
“I’ll let you decide where you think you belong. Someone in China already has. Many of you, indeed, in that report are referenced by name,” Pompeo said. “And, in fact, whether you are viewed by the CCP as friendly or hardline, know that it’s working you, know that it’s working the team around you.”
Senator John Kennedy (R-LA) has attempted to address this problem, submitting the Exposing China’s Belt and Road Investment in America Act in August. The bill would permit CFIUS to review greenfield investments performed by Chinese SOEs, including retroactive transactions. Since the legislation was introduced, it has not gone anywhere on Capitol Hill.
Indeed, lawmakers have failed to act, and China has recognized this weakness. The nation’s General Chamber of Commerce announced that greenfield investments would be the best and most common way for Chinese companies – private and state-owned – to enter the U.S. market.
Jim Talent, a senior fellow at the Bipartisan Policy Center, wrote for the National Review in June 2016:
“Congress walks before it runs, and it is still getting its arms around how best to respond to China’s long-term strategy for dominating crucial segments of the global economy. So I’m not surprised that the current reform bills don’t deal with the greenfields issue. But Congress and the Trump administration are going to have to deal with it. When a Chinese SOE builds a greenfield asset in the United States, there are usually other objects besides profit in view — objects that do not bode well for American workers or American national security.”
With the Swamp’s primary focus on defeating President Donald Trump and the circus surrounding Amy Coney Barrett’s nomination to the Supreme Court, it is doubtful anything will be done on this file.
The Mephistophelean Bargain
We are left with way too many questions for a subject that is unlikely to generate international headlines or dominate the 2020 election. In view of his family’s cozy relationship with China, what would happen to greenfield money if former Vice President Joe Biden were to become president? Can China sustain its global reach, considering how broke it is? Would states be willing to forgo perhaps billions in financial relief and job creation? As Johann Wolfgang von Goethe penned in Faust, “While Man’s desires and aspirations stir, He cannot choose but err.” States will likely fall prey to promises of cash injections, but this could potentially elicit long-term consequences for a nation going toe-to-toe with Beijing.
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Read more from Andrew Moran.
