i do believe if we really are serious about trying to rebalance our economy, make sure we get growth across the country and not just in the southeast, then actually the time for high-speed rail has come and that's why it has my strong support. >> mr. wayne david. >> the secretary of state for wales has said that she is prepared to be sacked because of her opposition to high-speed rail. will the prime minister take her on a very kind offer? >> i prefer to focus on the fact that in one year as welsh secretary she secured something that 13 years of your welsh secretary has never achieved which was the electricification of the line between paddington and cardin. >> mr. aiden burly. >> thank you, mr. speaker. an agro phobic man set up his own illegal money. he received a staggering amount of money on benefits. doesn't it show our welfare

system is broken and will the redouble its efforts to reform it? >> my honorable friend is absolutely right. the people who send us here want us to sort out the welfare system. they want it to be there for people who genuinely need help but they also want to make sure that if you can work and you're offered a life, you shouldn't be allowed to go on welfare. there's legislation and we voted about it and when the crutch come they didn't have the cuts to back it. >> thank you, mr. speaker. most people know that rushdale is the home of cooperation. next year is the united nations year of cooperations and will they have mutualism and the 20% trick? >> i note the excellent record of prime minister's visiting and what can happen when they get there. [laughter] >> so i will -- i'll certainly

put it in the diary. i'm a strong supporter of cooperatives and also in the public services and we'll be making some announcements about that maybe in the months to come. >> paul? >> thank you mr. speaker. earlier this year the prime minister demonstrated a strength of character to talk about the issue of multiculturalism. in view of the fact that i have a christian first seek and a sek surname i want my indian values with my core british values can we learn a lot from our indian partners in this effect many of who define their nationality regardless of their ethnic and religious backgrounds? >> i absolutely pay tribute to my honorable friend and the work he does on this issue. i think it's absolutely vital as a country that we build a stronger national identity and people clearly feel that yes, of course, you can have all sorts of different religious identities and indeed cultural

identities but it's very important we build a strong british identity and he's living proof of that. >> thank you, mr. speaker. tomorrow the european parliament will decide whether to increase the e.u.'s carbon reduction target to 30% by 2020. this is a commitment made in the coalition agreement. according to reports, the vote will be very close, but it won't pass because just one conservative n.e.p. out of 25 will vote for the 30% target. will the prime minister guarantee that all his n.e.p.'s will honor the coalition agreement and vote for the 13% target tomorrow? >> let me be absolutely clear we are committed to the target and nothing will change. but i'll do a deal with the honorable lady i will work on mine if she promises to work on hers who on recent months who have voted for a higher e.u. budget, new e.u. target. they even voted against scrapping first class air travel for them.

so perhaps she would like to give them a fly one and give them a talking to. >> mr. robert buckland. >> with the national audit office estimating the cost of criminal re-offending economy to 10 billion pounds a year, does my right herbal agree the need to the re-offending levels from the high rates from the government must be the priority of the policy? >> i completely agree with my honorable friend who has considerable experience because of his career before coming to do this place. the point is we inherited a system where each prison place costs 45,000 pounds. where half the prisoners re-offend within a year of getting out, half of prisoners are on drugs and over 10% of them are foreigners who shouldn't be in this country in any event. the key we have to do is make sure that we reduce costs in the criminal justice system by syste

system. >> mr. speaker, may i seek --

. >> investment worldwide may top $1 trillion by 2020. panelists discuss the effect of china's foreign direct investment on the u.s. and how to strengthen the relationship between the two countries. this two-hour event is hosted by the woodrow wilson international center for scholars. >> our format is going to be dan will lead off. we've given him up to 10 minutes to lay out his case regarding chinese foreign direct investment in the united states. derek will then have up to 10 minutes to make his response. we'll then have perhaps some give-and-take up here and then we'll throw the floor open for input from the audience to explore this issue in greater

depth. dan, over to you. >> steve, thank you very much. and good morning to everyone. it's a real pleasure to be here for this. my gratitude to the wilson center which was my very first job while i was in grad school working for mary bullic here at the center when it was back on the mall and we had sherry in the afternoon. i hope that still happens and the age of society for the dedication of the topic we're here to discuss. it's a pleasure to be up here with derrick in particular who's a long time friend and fellow scholar of what's happening in china and u.s./china relations. he and i have far more in common on this issue than we have difference between us but we'll do our best to find the differences to make it fun to spend time with us here this morning. the arrival of chinese outbound foreign direct investment around the world, as with other aspects of china's economic recovery from the debacle of the

prereform era that they are still recovering from presents the united states with consequences both good and bad for our economic primacy in the world as others get back on their feet. and also presents us with choices to make about how we are to respond to that economic development. to kick off the discussion of the topic of outbound direct investment this morning i'll make just three points for consideration, for yours and derrick's to get us started, about the nature of these chinese companies going abroad now for really for the first time arriving on u.s. shores. the first point i want to make is that whatever conclusions we draw about american interests with regard to this investment should be based on clear information and analysis of what is actually happening coming out

of the chinese side and as regards the american interest. not fearmongering, racial profiling, or defeatism about the merits of capitalism in a world in which has some economies that prefer a greater degree of state involvement in the economy than we prefer in the united states. it's possible to provide the type of analysis now and looking at homework and look at what's happening in terms of chinese investment trends. the second point that i'm going to make is based on that better information about what's actually happening rather than what we fear are concerned about, we can start to see patterns in china's outbound direct investment which is diverse and nonstrategic and commercial in their nature and can be understood in terms of what american interests are. so we can match up the pattern of what's happening with what we

think our interests are in this area. and thirdly, to the third point i want to make with and i'll finish with, is that we can maintain america's traditional role as a beacon for international economic openness and competition rather than revert to a kind of isolationist attitude. we don't need to believe that the cheese government is going to put american interests over their own in order to reach that conclusion and stand by those really eternal american principles about our economic organization. we only have to make sure that we have a strong-enough system to address whatever challenges might be inherent in this outflow investment from china. those are the three points i'm going to make to you. and i'm going to spend another five minutes walking through a few slides which describe those three phenomenon. first of all, in terms of the

availability of clear information, with which to grapple, let's consider the numbers. this is what is actually happening in terms of chinese outbound direct investment. and mind you, direct investment means greenfield, factory building. it doesn't mean investing in treasuries or securities less than 10% of ownership of companies, that sort of stuff is called portfolio investment. it's not what we're talking about this morning. this is the picture of china's outbound investment. until the 2000 there's nothing. poor developing countries can't do it. only come the mid-2000s did the crisis urgency in china's need for raw materials, energy, impel them to start making direct investments around the world and they happened almost entirely in developing countries that were resource exporters. not like resource countries like the united states. in 2003, the first year in the data set that we explore in the

publication that jack and steve described to get us started, this was the total set of chinese direct investments in america. it was virtually absent here. it wasn't part of the story at all even while it started to take off in places like africa, brazil, kazakhstan and the like. this is 2003 to 2005. it starts to get a little more. 2007, 2009, 2010, 2010 -- now we're looking at the first quarter and we're seeing a continuation of this trend. so the first thing to understand is that we're not talking about something that might happen tomorrow. we are talking about a change in chinese capabilities, chinese company capabilities to invest in more advanced economies. that is happening now. so this is a present situation. it's not a future maybe sort of thing. and most of that investment will happen without ever getting kind of review for national security. only sensitive sectors are going

to go before what's called the committee on foreign investment in the united states and only when there are merger and acquisition investments and there's quite a bit of chinese investments don't get a review. so we shouldn't kid ourselves to think that the majority of these inflows from china is even possible using our current national scombuecurity system o needs to be. my second point is getting into the patterns we can see and what's transpiring. this is the distribution of the 250 or so foreign investments that have happened since 2003. and when we start looking at the numbers here and you'll find this in our publication, the first thing that strikes us, this is not a china that is cherry-picking out a number of high tech industries. the pattern of investment inflow that we're seeing is really across the spectrum of the

economy. and in many cases it matches up with the things china is best at already, not just with the things where it has no presence or no capability. so what we see is chinese firms moving down downstream a bit in the industries where they're already dominant as a manufacturer. we see them doing things that pretty much anybody can do if you have enough capital and they're easy to do like investing in utilities, which are like a fixed income investment really. aes energy. the shale gas -- these are things the chinese know how to do. they're not putting commercial aircraft in the sky. so we see a very broad distribution, a mix of manufacturing and services, a mix of higher technology and lower technology, mirroring the breadth of china's existing economy rather than some picture of government aspiration to cherry-pick out high tech america. and when my colleagues and i look at the patterns of investment we see happening, it

matches up with what you'd expect a motivated economy, not one that was run by a star chamber of officials trying to figure out how to improve china's technological capabilities. and, in fact, that matches up with what we know about competition on the ground in china. margins are getting squeezed tighter and tighter for chinese companies partly due to overcapacity and manufacturing and other factors. it's a complex story. for the first time they have an incentive to go abroad in search of all the margins that apple enjoys in cupertino rather than being the 2%, 3% margin contract manufacturer with fox con back in china. so that describes what we -- what we see going. the third point then to finish up that i wish to make is that the u.s., of course, -- a

breakdown of the inflows of the united states we've seen thus far. and what we have had is that by number of investments, of 250, a data set of 250, about 70% or so of them are not government-controlled companies but are private companies. most of the individual deals being done are nongovernment chinese firms by which we mean by less than 20% government ownership in china coming to the united states to try to do business. 30% of them are greater than 20% chinese state shareholding in the firms so far as we can tell. by the value of the deals, it's more weighted to the government's side. no surprise there. government-related companies have better access to capital in china and they're more clumped in the capital intensive sector so two-thirds of the investment coming in is from government-related firms. that doesn't -- that doesn't really surprise me. but we have to ask ourselves

now, is there some government-related threat laden in this picture of what's happening that we don't have a system designed to address or deal with? and i would argue that our system has, in fact, been forged over a century almost to address the possibility that there might be government motives amongst foreign investors. there was concern about this prerevolutionary america that the steel mills here were british-owned and the canon balls they would be making would be used against us. that turned out not to be the case. those mills were pressed in the service for america for washington's army before the british knew what happened to their tea in boston harbor. in the wars it was german chemical companies and there's some in d.c. that we shouldn't happen because if we got a scrap with the germans, however that could happen there would be sabotage and those plants were

taken out of control of germans and put in control for dupont. taking that forward today for middle eastern investment with the petrodollars, japanese in the '70s and '80s all the claims down to the decades that somehow we wouldn't have a system that would look after the american interest turned out not to be the case. and the system that we've carefully protected and-it rated and brought forward today seems perfectly well suited to address the kinds of concerns one might find in a potential chinese investment today. final point i'll make and i'll pass it over to derrick to remember the foreign investment on the united states is not the end of u.s. government oversight of chinese investment in america. rights just the very first bite of the apple. once a chinese company is established here, if it is, then it is fully subject to american

counter-espionage law, national security law domestically. it will be under the surveillance of u.s. law enforcement of all sorts and stripes. the same as any other company would. they have to abide by all competition policy law and other anticompetitiveness laws that abide -- that all other firms have to abide by. so it's not the end of the story at all. it's not like it's our only chance to make sure that the firms operating here are operating in a manner which is consistent with us. i'll stop and i look forward to hearing what derrick's comments are. >> thanks, dan. i have -- there's a lot of people to think but i have far too much to say so i'm not going to thank them all. two people -- two groups of people, one if there's anybody upstairs in the overflow room, thank you. and if you feel you have something to say and you didn't get a chance to say it please come down at the end of the event. i'll be happy to talk to you. i'm sure dan will as well. we appreciate you coming if in fact if you went up there. i also want to thank dan for

setting the stage because i did not want to go through that and he has high tech stuff and i have things like this, which you'll see later. [laughter] >> having said that, i will say one thing about champion and challenger. i started tracking chinese outbound investment in 1999. anyone here want to go that far back? so i think of myself as the champion and dan is the guy who get all the publicity, which is -- which is where that resentful let's have a debate email came from. all right. in fact, dan and i, as he correctly said, are not that different in judging the current situation. and not really at all in judging the value of open investment so i'm going to have to work through some things hey, where's the debate where i get to the things where we're very defendant on u.s. policy. and i'll headline that now. the potential value of u.s. investment access to the prc is not very well understood, potential value and it's extremely large.

potentially. that makes it a very powerful bargaining tool. and it's a unique bargaining tool because it is not coercive. we ever other bargaining tools for the chinese which are coercive which have some drawbacks. we can get improvement in chinese behavior, not perfect chinese behavior but improvement in chinese behavior and think not putting words in his mouth including dan would want to see. we could win some of that in bargaining and solidify the u.s.-chinese investment. i'm going to outline where my position fits in versus some others. but first i want to give you some facts. heritage has a china global tracker it goes back to 2005. it is not just focusing on the u.s. the advantage that it has over the research dan and his colleagues has done it is global. it's the same database and the same methods apply to all the countries so you can make comparisons. it goes back, you know, farther than some current work outside

of dan that's being done in new york. the disadvantage is, it's shallow. it's $100 million only. so dan is deeper. he can draw more nuanced conclusions. another important difference is we include portfolio investment of outside bonds. so, for example, there's a $5 billion stake that cic bought in morgue stanley. we include that. it's not direct investment. we include it honestly why because as a policy marriage congress cares about that so we include it. so there are differences in our data. there are instructive differences. i want to stipulate at the outset dan's data set for the u.s. is deeper. so that's why i don't have those pictures 'cause his pictures are going to be better. i am going to say that there's some things we're going to agree on because of the different data and some things we're going to disagree on. chinese investment is trivial for the gdp and the american economy. it's something like the equivalent of 2% of gdp lux --

this is where our dan's data and -- it's not dan's data but it's a group effort but the data set presented in the paper, i'm going to have to call it dan's data and our data is different. [inaudible] >> right, exactly. the thing that dan did all by myself in a day. [laughter] >> we have chinese investment stable in 2010 'cause we count portfolio investment which started in 2007. we stable at $6 billion which is a slightly larger number than dan has. we have it on course to drop in 2011. we don't have a trend and the way we count it is different of the way dan counts it of a strong chinese investment but we have a strong investment in 2009/2010. it's not surprising because

there's some drain on chinese capital. we also have a different map because we conclude portfolio investment, chinese investment in the u.s. on our count is dominated by finance and dominated by the state of new york, we saw some diversification in 2010 which is very encouraging and very healthy but in 2011 we're not getting much in the way of transactions yet. we have a troubled transaction data set which applies all over the world, not just in the u.s. in the u.s. you are all are familiar with the cases, casino the cases which are emblemattic it. and there's steel development in louisiana and there's a subsidiary investing in a private aircraft maker in small private maker in minnesota. there are others. so there are notable problems in chinese investments in the u.s. which is one of the reasons we're talking here. we also have different numbers for soes. dan pointed out quite correctly that they don't necessarily dominate by the number of transactions. we have them dominating by volume. i mentioned that $5 billion

investment to morgan stanley. think about how that changes dan's volume figures. dan's investment by soe and ours is much higher and that is a big part of the debate. you know, on our count which is a little different than dan's what does that mean? does it mean anything? now i'm going to use my high tech props. >> soe are state owned enterprises. when you use these acronyms please let us know what they mean. >> thank you, ambassador. there could be a lot of questions what was he talking about? i'm going to have to slow down and i'm going to have to move so apologies who's inconvenienced by that. here's position 1 in my typology it was represented to me two weeks ago in beijing when a senior member yelled at me for all the american barriers. not just me yelled at our whole group unprovoked.

he asked what are your concerns about it? there are problems in chinese investment in the u.s. the position that this is the main issue on u.s.-china investment was not tenable in the u.s. policy debate. it's really not tenable on the facts. there are people nonetheless who believe it or argue it as a bargaining position. i'm just laying it out because i have recent experience. if someone here wants to ask about -- people use it over and over again. it's really not that important to anyone. and their p.r. firms. this is not really a serious position. it may be a bargaining position. the idea that the main problems in u.s.-china investment are america protectionism is not serious. the second position is what i would call the unilateral position which is -- i'm just standing here by accident. i have no idea who represents this. [laughter] >> the unilateral position which

is, hey, let's make the decision on what's best for the u.s. stop obsessing what's best for the u.s. but that's how we make the decisions based on what's best for the u.s. position. i'm going to go over and identify jack, the group i don't think he wants to be identified with. >> can you get a microphone -- >> can i speak a little louder? >> real loud. >> i can speak real loud. jack is not identified with this position. okay? we're still having problems? i always cause these sorts of problems. i don't like sitting still. >> maybe you could just hand the mic -- >> no, they're not going to reach. >> this one might reach. >> we got a mic, sorry, everyone. this does not count against my 10 minutes. [laughter] >> i formally disassociate jack with this position. i think there are probably some

people in this room who had this position. this is the american version of the problems in the investment relationship are all china. right, china is a threat, chinese investment in the u.s. is harmful. it's not may be harmful. it's on harmful. on balance we should not allow china to invest in the u.s. there's people who believe that and i get emails from them all the time. i'm thankful this is not a position that is represented in the u.s. congress. we deal with the congress all the time. they have problems. they have objections they get angry they don't think that chinese investment is a net negative for the united states. so there are people who hold this position. i welcome questions from them but it's not a serious question in the policy debate. and i'm thankful for that. now, the fourth position and i don't know whether the ambassador wants to be associated with the position or not but it's very respectable but i want to argue a little bit against dan here even though this is not my view -- >> why don't you move over. [laughter] >> this is the reciprocity

position. any argument can be maligned and misused. the reciprocity is a entirely legitimate position to take. there's value to this position as i agree there's value to dan's position even though i'm not going to adopt one of them. my problem with the reciprocity is we're not reciprocal investors. we don't want the same thing as the chinese do. we can't have matching legislations and a blind application of reciprocity is simply not going to work. it's not interesting. the u.s. and china are not mirror images. we want different things out of the investment relationship. we want want the same rules. reciprocity works on the wto because there's many, many participants. it's not the ideal solution but it's a legitimate point to make. now, this is how you know that this is the correct answer. it has a little asterisk to it. [laughter] >> that means footnotes. [laughter] >> i'm reduced to a footnote. the heritage foundation is not used to being in the middle and

compromising on anything. but that's where i ended up in this typology. this is actually the right position and i'll tell you why. there are substantive and technical positions. we disagree on policy and i'll tell you where the disagreement comes from. everybody who's in this community, the people up here, the people out there, certainly myself, has had this experience of how do we get china to change its behavior economically? we want the chinese to change. we want them to move to where the market -- i have a long argument that the chinese have been moving away from the market for a good 5 or 6 years now. but even if you don't buy that, we want china to move. people in the administration, people in this room, everybody in the community -- you always have this problem well, where's our leverage? there's the answer. the u.s. has all leverage. we threaten them and we cut off their market access and we punish them and people are uncomfortable with this. it undermines the existing -- it

undermines the u.s. economy to some extent and more to the point it undermines the existing international system. we have an example of noncoercive -- directly coercive leverage and that's chinese investment to the access. we have coal, we have metals we have managerial access. we're not land sensitive like the australians are, the canadians are, chinese outward investment is not --.. diversification, it's a history of, we want to invest in the u.s. and we couldn't because of the seno deal, and that's when we started looking elsewhere. why? why does the u.s. have this potentially unique role? australia, canada, there are other countries that have protective organizations but they don't have a scale. we have a scale that absorbs chinese investment that no other country can get close to matching. forget chinese investment, not that it's not important, and dan is right not to talk about it.

there is exactly one country in which china converts treasuries to: us. they can convert from one set of u.s. assets to another set of u.s. assets. that's what foreign exchange means. if china wants to diversify, this is it. we have something that's potentially -- not now -- extremely valuable to the chinese and it's a positive inducement to change chinese behavior. it's not a magic bowl, it's not going to get china to do what they want, that's ridiculous. but we'd really like to reduce or change the role of state-run enterprises. it's a legitimate american concern and has a lot of impact on u.s. trade as well, distorts the u.s. economy given china's size. it's you want to free chinese investments to the u.s., how about free flow of money in and out of china. these are all connected, issues to the united states.

we feel we lack positive leverage to move china. it's a frustration of every member of congress and most of the people in the room. it's an opportunity, not reciprocity. it's a unique opportunity because it's not a coercive tool. i'll make the strong point now. dan is blowing it. the unilateral approach blows it. i want to discuss the practical arguments against the position, you want to open the u.s. to china really, not just talk about it it? my argument wins in congress, not because i made it, but because congressments something -- congress wants something in return. thank you. >> dan, five minutes to comment and respond. >> okay. i just want to make two points

in response to what i just heard, and one the great things about america is the mobility, social mobility, and even political mobility how different organizations on the spectrum where you expect to find them can evolve over time. i'm struck by what derek just laid out, and i hate to say this at the wilson institute, really the heart of liberalism in america, and yet not all from the liberalism brought us stood the test of time, and there's two antiquated liberal international notions which derek apparently subscribes to which i think we shouldn't go backwards to. the first is the notion that the american purpose in the world is to change everybody else and to save them and make them better like us, that our success, that our principles whether we're, you know, for democracy or not,

capitalism or not, open investment and trade or not depends on whether we can convert others to the cause, whether, you know, ricardo was right or not, you know, it's good to be open to trade even if not everybody in the world is open to trade, and that turned out to be correct and still is the correct notion. derek believes unless we can convince beijing to follow our american capitalism which has shown some tarnish in the last couple years, we should withdraw aspects about our long standing conditions of trade flows on the ability to up vest in one another's economies. i have great concerns about this. my wife is a psychiatrist in new york, and it took me a long time within my family to realize my happiness is not predicated on changing everybody else in my

family. [laughter] you have to accept they are what they are. hopefully you're an example of what you do in life and gives people reason to meditate on doing things differently, but you can't predicate what you do, your principles on that, on others mirroring you at the end of the day. that's one old sort of liberal, american manifest destiny conceit which my realist teachers disabused me of in graduate school, and i remain in a kissinger camp than what derek is on this. the second point i want to make is this -- to summarize what he just said, i believe he was quoting a governor in saying this thing is golden, i'm going to use it. [laughter] we got this thing which is called access to the american market, and if we don't get from the chinese what we want, we're not going to let them have it.

now, the problem with that kind of politics is that it is a regulatory taking from somebody else in america. some american company has an asset, and they want to sell it to whomever is willing to pay the highest price, and some american, some other american company has an issue in china, market access, investments, something like that, that they want to get taken care of, and so they're going to the u.s. government, and the u.s. government is going to prevent some other unrelated company from being able to sell its oil company or whatever other asset it has to the highest bidder in order to get a tradeoff on behalf of some other u.s. firm. once you open up that box and start playing that game of taking away the market opportunities from some firms in order to fight a battle overseas for market access in other firms, i don't know where it ends actually, and i don't know how you go back and fix the math

to make every whole from that kind of state intervention and economic outcomes. it may be that the tools and analysis that heritage has been able to develop now permit us to do that kind of intervention without screwing things up, but i'm still skeptical of that. i want to see a little better evidence we're ready to take that on before i endorse the idea of using this new positive leverage or whatever derek described it as to get other things done for some other interested parties. finally, you know, the principles the u.s. stands by only matter to a company like walick because it's just one company and there's tell comes and everybody has misgivings about telecoms anyway. i'm concerned about that. for example, one of the things

said about the company is its senior management has military background for instance, and therefore, it should be treated as a special case. i recently looked over the american companies in the fortune 500, and i've considered how many of them have in their chairman's office and top reports people with military backgrounds in the united states, and i think there's about 40-50 business round table leading firms finding themselves under a scrutiny in china because of their senior management that we're uncomfortable with if we decide to play that game because they are the company that reads out on an issue like this. let me stop there. >> okay. deck reck, five -- derek, five minutes. >> we'll get into the debate now, more intertaping and less

informative. [laughter] dan's labeling me as one of those people. i'm not trying to change china because we're going to gain from changing china. this is pursuing the gnarl -- national interest. there's no real idealism. there are gains, things that the u.s. wanted from china for years very badly, most of the people in the room, i think, want them, although nay may not agree with me on the ways to get them, and we have not had a way to do that other than threatening the chinese, and now this is a way, not a maimingic bullet, but a way to improve the relationship for the long term. this is about a gain for the united states, not changing china. you know, dan is a very colorful and engaging speaker and opens opportunities for a colorful engaging response, only in my case i always go too far.

the marriage comparison, as a practical matter, you just don't accept people, your spouse the way they are necessarily because there's a danger of divorce; react? there's a danger of dwos in the u.s.-china relationship. the idea that they are the way they are and we are how we are and that's the way it is. not everybody in the city agrees with that and there's people who won't be elected president in 2012 who may not agree with that. we have to strengthen the relationship, that's what i'm looking to do, make the relationship more beneficial for the united states because it's in our interest and prevents the potential tension you can see between the two sides. the great thing about dan's response is i now want to be associated with the governor more than secretary of state kissinger. [laughter] i was aware of not wanting to be

associated with the secretary kissinger, but now i'm enlightened. talking about state intervention and there's no chinese up vestment in the country in 2005. we blocked the big one. did the u.s. economy suffer, require this gigantic regulatory apparatus? no. it did suffer in 2006, 2007, or 2008. this is a straw-man dance being created. i'm just going to push that aside. i'm also going to push the company aside because i don't care. it serves the people who want to have a bad-u.s. china relationship and those who want to use them to hit them over the head saying you're not open, therefore we in china are excused in whatever we do. look, it's a bunch of chinese military people trying to take over the u.s. economy. it's a distractions that people who are not in favor of

relationships that they use. i do want to talk about something related to the company. dan characterizes it as commercial nonstrategic. i think that's probably right about the u.s., but i think it's misleading. why? because chinese strategic noncommercial investment around the world is about resource acquisition, and the reason they invest in the u.s. it because it doesn't let them require the resources. we are confused. there's an outcome of chinese investment in the united states that doesn't look strategic partly due to the fact of american restrictions. if china were allowed to invest, you would see a resource focus and positions. the go-out program is government directed dominated by firms. i don't think -- this is where i disagree with positions four and five over here, it means it's

bad for the u.s. and we have to block it, but i think one of dan's opening statements is misleading. chinese investment is stray strategic, often noncommercial and different from the u.s. because we restricted it in some cases unwisely. let's not fool ourselves. if we open the doors to chinese investment either an exchange to improve the american economic position, or we'll get a lot of investment. that's why we need something in return politically. this is not going to get better. it's going to get worse. lots of soe's investing in the country making it worse. they will follow the rules. we have laws to deal with them. we need to strengthen the relationship because the future of china investment in the u.s. is strategic, noncommercial, and it is led by authorities.

>> we seem to have identified an area of difference. [laughter] which has to do with the question of whether foreign direct investment offers leverage possibilities. perhaps we can explore this a little bit further in order to try to understand it. the united states is a major up vester abroad. presumably if we use chinese interest to come into the united states as a lever, foreign countries where the united states wants to engage in foreign direct investment can use that leverage back against us. can we explore this a little further? in other words, what are the -- what are the implications of treating foreign direct investment as leverage? another question has to do much of the foreign investment

including chinese, but broader than that simply comes into the united states without being under any particular regulatory regime. it has to conform with u.s. domestic laws, but u.s. states, for example, are very active in trying to attract foreign district investment into the states because it creates jobs and tax revenues. how does the federal government get control of this type of investment so that it can use it as leverage, or do we only use leverage in circumstances where government approval of the investment is required in some form? both of you are free to comment in these areas. >> i for some reason feel the questions were aimed at me. reciprocity. there are implications for investments around the world. it doesn't affect u.s. investment in china because china use their mart as a

bargaining chip all the time all over the place. that doesn't mean the u.s. should do it because china does it. i'm advocating it to win gains in the u.s.-china economic relationship that the united states wanted for a long time. it won't affect the relationship with china if we use reciprocity because they're already using reciprocity. maybe dan because he's more motivated will point out other complications to this. my initial reaction is no, i could be wrong, but no, because as i said, reciprocity is the fundamental principle in the wto. it's not as if the united states has gone crazy about this by adopting this idea of we want something in return, but there could be complications, and that's a fair point to raise. i'll let dan try to make that argument. it's not going to affect the relationship with china. they are already doing it. the regulatory review -- i mean, i didn't get into this in the points because it's technical and boring. we already have a review process

of chinese investment in the united states called the congress. the congress reaches out and reviews anything it wants and discourages it and makes trouble. that's not the ideal ditchings. -- situation. i would like that situation to change regardless of progress with china. the leverage comes from the fact we have political interfern. we can create a regulatory review process that i think is better than the process we have now that would also give us leverage. i separate the leverage question from the review question. we have review which is not ideal, but if there's a regulatory process to regulate entry by chinese money, that would be leverage. we can have leverage either way and improve our own environment, dan would agree, by limiting random congressional agents. >> let me say that i think the

threat, this rattling threat that the congress will get somehow interfering with the deals if we don't get what we want is not a wise strategy, an american-china strategy. it hasn't worked effectively for the decade i've been watching the relationship, and moreover, you know, more important than congressional table rat les is law which congress is also responsible for. statutory laws passed by congress, there's one mandate by the united states screening inward direct investment, and that's the national security. derek, i believe agrees with me, that there does not appear to be any particular china national security threat from the inward investment we're seeing to date. he hasn't debated that or taken it on. instead, he's saying quite apart from that issue of national security, we might be able to get something else done unrelated to u.s. security in

china of a commercial nature in our interests in the course of allowing this chinese investment in. maybe, and maybe congress would like to date that and try it in u.s. law, but, in fact, for, you know, a century, the congress has been dat debating this issue, and that's the way the american system works. we have to work it out in legislation, and then have them signed into law by the president, and we have a regime that is the official united states position on inward investment and it worked to the american advantage. derek pointed out in 1999 there was not much direct investment in the united states or 2005 for that matter, but look at 1900, 1800, foreign investment in the united states played a profound important positive role in our economy before our founding as a nation. i don't think the fact that china is only now at the developmental stage where it is starting to be a significant

outward investor should be used to write off the importance both in terms of the specific cation of china and in terns of the principle, the principle which the u.s., you know, we're only a nation of 300 million people in a big planet, and american interests rest on our principles and what we believe in, what we stood for, and the fidelity which people around the world have had towards our ideas, the soft power of our good ideas that have proven themselves to work. if we throw those by the side willie-nilly in this case, it's a global service that comes back to haunt us seeable and in unforeseen to this. >> i want to respond to this. maybe it was the word "willie-nilly". we are trying to bargain for the same principles that govern the american economy. it's not that we departed from

our principles to gain a selfish u.s. interest, but to promote the free flow of up vestment or protect the intellectual property. i mean, we are taking our principles, not demanding anyone do something, but saying -- we're bargaining. that's what the wto round. i'm not clear why we have that, but in principle, we would be bargaining for the exact principle of open markets you're talking about. i'm not looking to usher in prerksism. i'm not looking to gain a special advantage for the u.s. and china. i'm looking for china to move towards principles the u.s. stood for for a long time because it's a gain for us. we're standing by our principles and self-interest. >> you're saying we have to depart from our principles in order to protect the principles. >> bargaining is not departing from our principles. we are trying to get to an outcome consistent with

principles more broadly; right? you're looking at one section, that's why it's unilateral, one element of what the u.s. stands for, one application, and acting as if that's the end goal. that is not the end goal. the end goal is we got a broad range of open markets, we have broad application of principles to the economic relationships, not just in one area. >> let's open the floor and see whether your basic presentation of the issue, which if i may summarize is basically trying direct foreign investment is good, but how we should adopt a policy response to it, there are differences between the two presenters. let's start over here against the wall.

>> [inaudible] >> yes, please identify yourself. >> is this on? >> can anybody hear me? >> we can hear you. >> okay. kerry from cna. i have a question -- >> carrie, let's get the mic fixed in case there's viewers upstars and elsewhere. is there another microphone? there's one coming. >> how about this, oh, yes, even i can hear me. i'm from cna. i have a question really to address to both of you. both of you have talked about the u.s. congress and this is -- the u.s. congress is really something that can cut both ways. for many years, congress was

objecting to the u.s.-china economic relationship because they saw, you know, jobs going overseas and american investment overseas. based on dan's map now since 2003, we've had investment suddenly coming into the states, and each of the states is made up of congressional distributes. how do you see what kind of an up fliewps this has on congress' attitudes? for of a negative attitude or members of congress seeing the investment as interest to their district? can you comment on that? >> well, first of all, i think one thing i very much agree with on derek is the early days that i wont say trivial anymore, but we're still very much in the early days in terms of the total value of chinese investment in the american states. it is growing at an extremely

steep clip. look at direct investment leaving aside the portfolio numbers for a moment, and so we have to see how it plays out through the american political economy. it will be fascinating to see whether the chinese professor pops back up in the presidential election campaigning the way he did last time around. i bet he will, but we'll see how much resonance there is. we've seen the national governors association, western governor association have a very different take on what these inflows from chinese firms mean for their states and districts. a much more positive attitude of readiness to focus on the benefits and ask for more specific explanations. if somebody thinks there's a national security threat, derek doesn't, but others do including some on the hill, and the governors are starting to show

show me what the threat is and why our system is not adequate to address it because it's not clear to me what that would be. i think we're going to see a more balanced discourse in other words as more local interests which are cognizant of the job effects, the local tax base effects, make sure their voices are in the mix and saying, hey, this worked out well for us locally. >> i had an answer. i mostly agree with dan and the thrust of your question, carr irk e. there is this possibility. i get questions almost every day from a local delegation going to china. do you have anything to tell me the state officials. that's something and it's starting to happen. it's not -- as dan pointed out, it's too early and too small to weigh against if you believe china's currency policy is taking away million of american

jobs, i don't, but if you believe they are, chinese investment is not yet a political counterweight to that at least in the congress, and, you know, we could see it grow into something of a counterweight. it's a ways away yet, so the question, you know, if you ask me, hey, can we manage the u.s.-china relationship for awhile that there's no american action and chinese investment is a potent political force in the u.s., yeah, maybe. i'll give you one story that weighs against that. we had a chinese delegation come in after the crisis hit, and i gave the usual story which is the one you just gave, politically it helps in the u.s. if there's more chinese investment creating jobs and there's not the lost job stories when unemployment is rising and the lead of the delegation said, one of our reviews about outward investment is it has to have a gain for china obviously, and

one of the points in our reviews is why are you creating jobs overseas that you could create here? chinese unemployment is much worse than american unemployment. it's an understood fact. there's political prrns in china too. dan is not making this point, but if you thought china is not investing strategically, you'd have to get government orders to get mass job creating investment in the u.s.. that's not what china or chinese companies are looking to do. i think it's going to be a long time because of china's own interests that are entirely reasonable before chinese up vestment is a political force to offset the political forces in the u.s.. screaming to lost jobs to china, but this is going to be a while in developing. >> we have a number of questions from the overflow room, but one or more questions here, and then we'll go to the overflow

questions. yes? do we have a microphone? >> yeah, i'm a member of the u.s.-china economic security review commissions, but i was also involved in 1988 in writing the law that provides that national security when i was general counsel of the senate banking committee. as i look at it, both the wto and imf, their preambles talk about mutually beneficial balanced trade. warren buffet wrote an article in "fortune" magazine in october 2003 entitled this "trade deficits are selling the country out from under us." warren buffet wrote that. by running massive trade deficits every year, you're sending dollars outside the country to not buy your goods, but buy you. the road we're on is to become not a shareholder economy, but a

sharecropper economy where the other guy owns it and we work. that's what warren buffet talked about. .. econo economy. that's what warren buffett talked about. now, since 2001, the united states has won $6 trillion worth of trade deficits, $2 trillion with china. since 1979, when we gave china mfn, we have run $3 trillion of trade deficits, very interesting. china has $3.1 trillion in foreign currency reserves. chris cox, the former chairman of the s.e.c., when he spoke about this issue, said traditionally in america we have not wanted our own government large chunks of our own economy. he said on the road we're on, we're going to let chinese state owned enterprises and chinese owned companies and sovereign wealth funds owned by the government of china, we're going to end up with a foreign government owning large chunks of our economy. >> can you phrase your question? >> so the question is, is this

the kind of road that the united states wants to be on or should we not make it a matter of very importance that we begin to rebalance our trade and move toward a balanced trade policy so we can stop the selling off of america to finance our trade deficits? >> either of you want to -- >> let me offer this. i think, you know, is this the road we want to be on? i think if in order to remedy its competitiveness challenges, the united states needs to >> if b we have to keep them fr bringing them back to america and using them in our economy to something, whether an asset or a good, then what does it say about our prospects as an economy? that's a road to serfdom. theas road where you will remai exposed to competitive players out there, even if they're doing reallyn well this inning, i thik

is the only one that's consistent with american long-term interests. that if we don't adjust our policy regimes and our competitiveness in light of competitive new players in the world economy, then i don't know what alternative we really have, i don't think. and indeed, there are aspects of china's competitiveness which aren't market oriented in the way that we play the game. no question about that. but also let's remember which economy has allowed itself to be more open to foreign investment than any other in the world in the past 40 years and that's china. which has 1.5 trillion of foreign direct investment assets in its economy which relative to the size of its gdp is just vastly eilarge. every big american company has a big position in china. american telecom companies built the chinese telecom system to a great extent. american companies are building their automotive economy to a fair extent. i don't know if they get a fair

shake but if they have the same sharecropper outcome test that you just objected they would never allow motor ola to go to china or gm or ford or anybody else. [inaudible] >> just for the benefit of folks upstairs that the american companies invested in china are not government-owned companies. we, as you know, pat, 'cause you've been involved in the legislation, have considered over the years whether to trea government-owned companies differentve in terms of their right to invest in the united states. and we've chosen not to. we have a slightly higher degree of screening for them under fensa after dubai just dating backof three or four years but that's only screening for national fesecurity. it doesn't have to do with them as a owner or a player in the american economy. we've chosen not to take that route of having a two-tiered system and it's worked pretty well for usco to date, i would argue. >> yeah, quickly, pat you and i have talkeod about the

imbalances. i just want to make one point for everyone else's benefit. when you're talking -- your fear of china is really a long-term fear. soe's are so far away from owning ag noticeable chunk of te american economy. i mean, it's just decades. it's years. your real fear is not china. it's us. we're messing ourselves up. and so this is a little bit off-topic but i don't want you to mix up the what might happen in the future with china's investment and because i distrust chinese soe's too but that danger is a long, long way off with what you're worried about now, which is really 10 years of bad american economic polic policy. >> hi. hank levine with the albright stoneridge group. i just want to offer a very brief comment on derek's views and then pose a question to dan, actually, related to the state

ownership question. on derek's views i would just say it just strikes me that there is perhaps an undervalue or underweighting of the potential downside risk of your proposed policies. that is to say that the historical record, i think, of the u.s. government using so-called leverage, excuse me, in the economic area to change chinese behavior is pretty poor, whether it was negotiations in the '90s on ipr before china was a wto member and we could slap tariffs on them willy-nilly to use that phrase, whether it was president clinton's effort to link msn renewal to human rights. it hasn'tha worked and it just strikes me that the more likely outcome of the course that you'reh suggesting is the u.s. then foregoing the efforts of the "n" word chinese investment and chinese companies both investors and exporters suffering mitingly for china as the chinese retaliate to what they perceive of the

discrimination in the u.s. it just seems the downside risk is perhaps under valued. for dan, at the rollout event here for yourde report actually there was i recall a representative from the steel industry who posed what to me was an interesting question. and while i sort thof, you know emotionally kind of agree with the notion of not discriminating between types of ownership of "n" word investment, the question arises -- let's take the steel industry. to the extent that you have a chinese state-owned steel company which can come and invest in the u.s. and then using cheap credit and other types of chinese support, chinesech government support cod then theoretically over a perid of time to drive their u.s. competitors out of the market, companies that face the rigors of the market. to what extent do you see this as a potential threat or a likelihood or an issue of concern? >> hmmm, thanks, hank. it's a good question. and it's a a sensitive one and

important one. i'll say this, that the final point i made in my opening remarks was that the process is just the first bite of the apple that the united states has and once we've decided that there's no classic national security threat to the united states from a foreign firm, it say steel companies or something like that investing here, we're not done assessing the behavior of that firm. there are many other kinds of threats to the american economy which are governed under u.s. law. one of them is anticompetitive practices, predatory intent on behalf of a firm using its superior access to capital or resources or something else to drive other companies out of business in a way that would be bad to the u.s. interests. so if there's any evidence of that, driving competitors out there's a good chance that the justice department would e invo

u.s. competition law, antimonopoly law to address that behavior in the sector. as they would against an american steel company that was doing the same thing. such as in the trust busting that it gave birth to, competition law 120 years ago. also there's the antisubsidies code under theth wto that allow us to look at the capital structure behind chinese firms and if it's being provided to those firms in a discriminatory way c back home, that's clearly designed to help them achieve n export objective, let's say, then we have those tools as well which are more multilateral which we can pursue. if it turns out that there's some new kind of economic poison associated with chinese companies in the world today -- because china really is different than anythinged that' come before. if we can identify a new kind of economic phenomenon associated with the chinese state-owned

enterprises, then certainly let's dfo a study about it. let's think what that threat is. nobody has really been able to identify it yet. as derek said, there's such a tiny pittance of chinese global investment to date compared to existing multinational company investment that it's hard to actually put your finger on any such abusive marketns power yet. it's a fear factor that what might happen rather than looking at evidence of things that's happening. >> in want to respond quickly to your comment. i agree the u.s. government has a chance of not implementing this properly. what i disagree is that there's a risk -- i'm at the heritage foundation, everything that the u.s. government is doing is probably getting messed up. >> you'r e advocating doing more. >> i don't think i am. that's one of the our disagreements. but where i disagree is the fear of chinese retaliation should prevent usme from trying. all those attempted linkages didn't work on the u.s. sideh ad it didn't really cause that much retaliation on the chinese side. the real issue is whether you

think the status quo is okay. do you think the status quo is okay in the u.s.-china relationship. it's not worth it to try to take this issue as dan points out there's some drawbacks in trying to use this. do you think theis status quo i the u.s.-china relationship is really bad then it is worth it even though the u.s. government might mess it up. my response to your question i don't think the downside risk is high and if you think the status quo is all right then why not do it. furnishing the status quo is okay, thens you have motivatio. >> y i'm going to move to the overflow room where three questions that have a linked compensate. what are the national security implications in latin america and africa? and if chinese investments over and across countries -- are they becoming more or less strategic? and if chinese investment in the united states is strategic and noncommercial, what are its

strategic objectives? >> okay. i will point out again that we have a global database and dan doesn't. [laughter] >> so we know the numbers for chinese investment in latin america and sub-sahara in africa, bringing the concern about a couple of years ago and now latin america being the prime concern. i think the national security implications are summarized if you snooze you lose. we have opportunities to improve our economic relationships with these questions. we have the colombia andoz pana free trade agreements sitting there year after year after year. if you're really worried about chinese economic ties to these countries expand america's ties to these countries. there could be national security implications of chinese investment in these countries. it has to do with our passivit and it has to do with us more than china. i think the -- i'll leave the strategic part of the investment

in the u.s. to dan 'cause he does have better data. chinese investment overseas is becoming a little less directed. the go-out was a big resource grab which is a lot of people characterized china's investment and there's still a lot of that. don't get me wrong. the largest -- the investments, cis the sovereign wealth funds. next is the fourth oil company, the next is a aluminum company. it looks likelo you're getting more investmenat on the private firms and diversification. it looks directed it looks strategic. no doubt about it. it looks like they are starting to ease. to ease in a perceptive question by whoever asked it. i'm not saying anything

definitive. i of data. as we both pointed out, there is not much data. >> we have a global study coming up at the end of the year. >> years. >> apples and oranges. clear cut. >> the only differences we're interested in are on the subject of this report. >> that channel is to be continued. we have somewhat surprising to me, already established here that we don't r in the pattern investment in the united states to talk about here at this table. well, yeah, i guess, but if there does not appear to be on the table from our discussion from the presenters here a clear on national security risk.

>> we looked very closely at chinese enter sector investments around the world. and how they related to china's sense of its energy security needs. and one of the things we found is this. after chinese oil firms, national oil companies invested, say, in sudan and used as much political capital and treasure as they could muster in the u.n. and every other oil venue to protect the interests of petro-china and signo petro investing in africa, if back home they didn't allow gas stations to raise the price of at the pump for petro, then

those state-owned companies took that oil and took it to the japanese. when their own government, when their own party -- when the communist party was telling them bring it home, we need it at home. and they said screw that, if you don't raise the price of gasoline our refinerys are down for maintenance, sorry, we're going to sell it to the koreans and the japanese and that's how they behaved. yes, we have seen some strategic rhetoric around china's investment in a place like africa but how these firms actually behave, it looks a lot more recognizable to me as typical profit-oriented international oil company behavior than some agent of the state. >> i need to respond to that because i partly agree with dan but not entirely. there is some commercial behavior. there's also heavy intervention by the state. what investments are proved, where financing comes from, what

you're allowed to pay, this is a classic example recently as sino -- pet -- no one was even closer to their canadian oil firm and it was fine because it came from the bank and it was approved by the government because it was oil sands and it was related to china's strategic objectives. so we do have some commercial behavior by the firms but let's not forget who's standing above the firms, who's giving them the money, who's approving them and directing more at the investment outlet. >> let me add one more thing on this topic while we're on the question. the origin of china's restrictions on outbound direct investment that date back, you know, all the way were a neurosis of hard exchange, right? china is coming from a moment where they couldn't buy as much as a drill bit, they had to rely

on loans and friendly relations with the russians i wouldn't want to rely on since my family left in 1892 and so from that time of terrible neurosis about the available of foreign exchange, right through very recently there was an allergy to allowing firms to take foreign exchange abroad and invest abroad. why not create jobs at home? oddly, today, china now has the opposite problem. it is concerned with an overabundance of foreign exchange that's contributing to inflation, severe macroeconomically disruptive inflation inside the chinese economy and so as regards to policy towards foreign direct investment it's no longer required to get permission deal by deal. only above a certain very large number for outbound flows and to sensitive countries and countries like taiwan or in geopolitically complicated cases

like oil sands are they going to get involved. for the vast majority of outbound deals, it's no longer from asking for approval anymore. the rules that describe how the government treats outbound investment in china have evolved somewhat over recent years and we should -- we should be mindful of that. >> two more questions from the overflow room. please comment on chinese foreign direct investment in the tobacco and gaming sectors in the united states and does either of your positions help to promote greater transparency and improved corporate governance in china? okay. >> you want to think about tobacco and gaming for a while? >> there's not much to think about. [laughter] >> okay. >> yeah. well, mohican sun out of

connecticut would be out of business but not as direct investment but as gamblers. i would only say on this question out of picking out economic sectors, that i would prefer to revert to principles and say as concerns to foreign policy the only thing we need to be concerned about is our classically defined national security when it comes to parsing an "n" word investment or some other economy. i don't think any china specific threat to the gaming sector, to the strategic gaming sector in the united states. i think that industry can stand without some special scrutiny applied by the process. in terms of governance i do have a few things to say but let me turn to derek and we'll see if i have a chance to inject it. >> okay. there is potentially a lot of chinese money that would go into gaming. i think if you're all familiar with what it looks like now.

i had a different reaction. i didn't know if the person was asking a question because they were threatened or because they wanted that chinese money to come in? that's going to be the double-edged sword. gaming is where there's potentially a lot of chinese investment and some poem will be oppose it and some people will be opposed against it. it's not politically important to people outside of the industry. i'll start with government and transparency, you know, obviously i mentioned at the beginning one of the things is about the way soe's behave, the way they're subsidized in various ways by the government. lack of transparency is a huge issue with chinese firms that are listed in the united states. this is something the u.s. wants chinese behavior to improve on. so we get back to this difficult question of negotiators and investors how do you get china to change. you don't get them to change to say that it's not in your interest to get them to change.

if you want china to change, some involve threats. i think corporate governance, transparency -- again, i'm not promising a magic bullet but there's ways to get china to change its behavior in a positive fashion using the bargaining that i'm talking about. they're not perfect. they may not to work but if you want china to change the strategies the u.s. has been following to this point have left a lot of people unsatisfied. >> let me just add one thought on governance, you know, i don't think using our leverage we can get beijing to concede to improve governance by 12% next year, you know? you will be 12% better governed. it's just not going to happen that way. it will take deep systemic change in china over time to create the conditions that nurture companies that have a better standard of governance. until that time, again, to re-enforce this message, nothing in our stance towards the national security visibility of saying, yes, to a chinese investor precludes us from saying that a firm may only

operate here if it is able to -- it is able to abide by the full set of u.s. law and have the governance tools available to it to comply with u.s. law. if it does not, it will not be licensed to operate in the united states. or if it departs from its ability to do that, it can be shut down on that basis. so let's not think that, you know, we've only got one chance to say no to a poorly governed chinese company. so i say keep the door open then and we've got, you know -- we're going to wake up to the fact that governance isn't just something you do because it's a nice democratic thing. you do it because it's good for profits. it's good for business. it's good for shareholders and when companies like all these deals like sino forest and all these blowouts maze issues with corporate management capabilities i want to learn that. i don't want to give anybody the skew well, the reason we're not

in america because they won't let us in, not because we don't have the skills to do it. >> okay. back here. >> understanding the sensitivities of the security and practical and emotional dealings with china, i'm wondering in 5 or 10 years we're going to be talking about south america. we're going to be talking about africa. we're going to be talking about india. is there a way to approach this so that we are already laying the groundwork for a globalization of our policy? because we're going to have the same issues with other developing countries? >> well, i'm actually not sure that's true. there's no -- you know, there's this idea that there's a set of emerging markets and they're all going to follow in china's footsteps. if that were true, then we shouldn't be giving the chinese so much credit 'cause it's not going to be easy for india to follow in china's footsteps and there's not going to be a lot of

money pouring into the u.s. there's already some significant investment in america. the chinese model salts different as we know and it's led to this accumulation of a lot of cash that can't be used at home. so i'm not sure that we're going to have globalization along the lines you're talking about. related to that is, there's a perception in the united states with some justification, not necessarily entirely justified that china is different. there are indian state-owned enterprises without getting into too much detail -- the idea that the indian government guides them in some ways sort of obviously falls on contact either the government or state-owned enterprises so don't have an equivalent in terms of size coming down the pike or anything of that nature so dan's policy -- what dan has referred to very eloquently over and over again is historical u.s. policy is going to rule in most of these cases. we're not running huge trade deficits with the brazilians. we run a -- a relatively small

trade deficit with india. all that other baggage doesn't come in. in that sense china is different. i don't mean it's so different that we have to treat them differently and discriminate against them and i'm not sure we have to worry about globalization of u.s. policy. u.s. policy is generally fine. the question is, whether it's fine with respect to what is now the world's second largest economy which has developed very differently than the rest of the economies in the top 10 list and which is treated as a rival, different than japan, politically differently in the city. >> i'm paul. i used to work in the world bank and i'm now in capital investment work. i have a couple of questions. don't we need to worry about the law of unintended consequences. what i mean if we try to overdirect something it may go in a different way than we expect it to in reality? and shouldn't we be looking at this from a long-term strategic standpoint? you make the point that this is

a very small part of the global economy right now. where it's going to be in 20 year's time is a lot more important. that was one point. there's quite a lot of analysis that's suggestive that chinese soe's are a lot less efficient than chinese business. there's a professor at maryland who says 92% of manufacturing gdp in china actually comes from the private sector and not from soe's. so this suggests that -- actually, the private sector is a lot stronger. maybe what we want to do is encourage the private sector which has two constraints now in china. one of which is finance and the other which is labor costs which is rising so we're seeing chinese companies move from vietnam to china precisely to get around two things, trade barriers and labor costs. should we be trying to encourage chinese fdi into the u.s. because it will actually do what fdi has done from other countries in the past. i'm from the u.k. originally, british investment built this

country in the 19th century. the genius of the u.s. it seems to me has been to take other people's resources and to use them to grow its own economy. >> uh-huh. >> maybe it should carry on doing that. [laughter] >> the final point i have is do you see a difference between french soe's investing in the states and chinese ones? does it make any difference that the french government is pressing edf to invest in certain ways and subsidizing them? is that any different from chinese soe's? thank you. >> good questions. powerful questions, thank you. >> let me start and go backwards a little bit. so not just soe's but again this is the reason why we've taken more time than derek to do our global database because it would be rather easy to cast a very wide net and collect up all the sovereign wealth funds doing just mere portfolio investment around the world and say that says something about their nation's competitiveness, their nation's readiness to operate in

a complicated ocd economy by which standard the middle east would be the most economically competitive region of the world rather than just the purveyor of black oil stuff that's in the ground, which is, of course, the case, not a competitive threat to american avionics or anything like that. france, somewhere in the middle, of course, of the story, pretty advanced economy. and then china, you know, further down -- further down the road. but in the long term, very much going in a direction which is globally significant. i didn't touch on our long-term estimates of what the value of chinese outbound investment to be. but the study we put 1 to 2 trillion of additional outbound investment by 2020, it starts, you know, 2 trillion here, 2 trillion here we're starting to talk about real money and that's just over the next 9 or 10 years' time frame and then finally i very much do agree with one of the implications in