US should open up to more China investment

(China Daily)
Updated: 2007-05-30 09:33

The author Mei Xinyu is a researcher with the Chinese Academy of International Trade and Economic Cooperation

With all the concern over the dramatic imbalance in China-US trade, it is expected that the second round of China-US Strategic Economic Dialogue concluded in Washington last week will further open the door for direct investment by China in the US.

The Chinese government is making unprecedented efforts to boost imports and reduce the trade surplus. However, reversing the trade imbalance by increasing Chinese domestic demand or dramatically increasing Americans' savings is a distant possibility.

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A more effective means to cut down the surplus in China's current account is to raise overseas direct investment. Overseas direct investment could powerfully upgrade the structure of China's overseas assets.

The State reserve of foreign exchange accounts for the majority of China's overseas assets, and the proportion is climbing quickly.

The managers of the reserve are loaded with risks in the foreign exchange market. They also face the danger of pumping extra money into the Chinese economy which is already troubled by excessive liquidity.

These pressures would be dramatically eased when overseas direct investment is geared up. This use of overseas direct investment has been effectively used by many countries.

In the 1970s, Japan had planned to make huge investments in countries across Latin America, Asia and Africa in an attempt to promote the industrialization of the developing countries to stimulate the export of its industrial equipment.

The Maekawa Report, released in 1986 by an advisory council to then Japanese Prime Minister Nakasone Yasuhiro, suggested that Japan should transform its economy to depend on domestic demand by boosting consumer spending and overseas direct investment to reduce Japan's huge surplus.

China is now enjoying a demographic dividend. A relatively large share of the population has reached the prime age for working. Saving is high for most of the working population and spending on dependents is relatively low.

At the same time, the problem of an aging population is looming. It is very likely in the not-too-distant future that revenues from overseas direct investment will be used to help China's aging population share the economic growth in other countries and regions around the world.

China's developing overseas direct investment is also in the interest of the US. The US has seen an extremely low level of personal savings in last decades, so it has to depend on money inflows to bridge the gap between domestic deposits and its foreign investments.

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