Economic Development in the World's Fourth Largest Economy
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 Fall 2015

  
 Southbound: From the Editor

Fall 2015

The Yin and Yang of China-U.S. economic development

By Mike Randle

Mike Randle - Southern Business and Development

According to Chinese theory, yin is a passive, negative force and yang is an active, positive force. Chinese philosophers believe that the opposing forces aren't really contradictory. Instead, they are interconnected and complementary, creating a balance in one's life.

Are the world's two largest economies practicing the philosophy of yin and yang? Not hardly, but recent developments may soon be in play that will benefit U.S. economic development in China and Chinese economic development here.

Growing Chinese investment is welcomed by U.S. officials in certain industry sectors -- specifically non-defense sectors -- as evidenced by the surge in greenfield and acquisition projects outlined by this issue's cover story. That is not necessarily the case in China, where U.S. companies regularly complain about investment restrictions. China currently restricts investments by U.S. companies in over 100 industry sectors. It should be noted that China has Bilateral Investment Treaties (BIT) with over 100 nations, including France, Germany, Japan, Korea and Russia. There is no BIT between China and the U.S.

A Bilateral Investment Treaty is an agreement between two countries that enacts regulations for foreign investors and their investments in both countries. Officials in the U.S. and China have been formally working on a BIT since July of 2013. A BIT agreement would launch waves of investments in both countries by both countries. Currently, foreign direct investment by China, while growing fast, only accounts for about one percent of total foreign investment in the U.S. And U.S. investments account for about two percent of all foreign investment in China. Those are pathetic totals for the world's No. 1 economy (U.S.) and world's second largest economy (China).

We know how a BIT with China would help U.S. companies. Most importantly, it would allow American firms the unfettered opportunity to sell more products directly to a growing middle class in China that is already larger than the entire population of the United States. Also, a BIT would protect American companies from intellectual property risks by eliminating current investment restrictions that require U.S. companies to partner with Chinese firms.

But why would the Chinese want a Bilateral Investment Treaty with the U.S.? As the cover story points out, the Chinese economy is in transition. It is moving away from being the world's factory floor into a new era of innovation, and it needs the U.S. -- specifically the innovation from U.S.-based companies -- to make that transition.

Even without a treaty, state-owned and privately-held Chinese companies are pouring capital into U.S.-based research and development. They are also buying intellectual resources at a rate never before seen. And it is not just the U.S. where the Chinese are investing in R&D. There have been sharp increases in patents secured by Chinese firms using Japanese and German researchers.

A formal BIT agreement would make it easier for China to rebalance its economy. And it is certainly in a position to do so. As opposed to basing most of its economy on exports and domestic investments in infrastructure, the Chinese now want to rebalance their economy through domestic consumption, services and better technology. In other words, China wants to be more like the U.S. And, as mentioned, with a newly established middle class that is larger than the entire population of the United States, Chinese officials are making the right move. A Bilateral Investment Treaty signed between the two countries would be another wise move.

Editor's note: In the "Best of Economic Development in Louisiana" that was published in the last edition, there was an incomplete list of category No. 24, "Louisiana's Best Local Economic Development Agencies." It should have read:

24. Louisiana's Best Local Economic Development Agencies

Greater New Orleans Inc.
Lafayette EDA
St. Tammany Economic Development Foundation
SWLA Economic Development Alliance

Also receiving votes: Ascension EDC; Baton Rouge Area Chamber; England Air Park; Iberia Development Foundation; Livingston EDC; Northeast Louisiana Economic Alliance; North Louisiana Economic Partnership; One Acadiana.

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