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How China suffers from the trade war



Now the difference is coming. In 1890, investment capital flowed from Britain (the more mature economy) to the United States – and on a large scale. In those days, Britain invested about 6-8 percent of its national income overseas, with the United States as the single biggest target.

Instead of attracting capital, however, China rejects it. Even accepting the claim that official statistics underestimated US investment, most private consultancies estimate US investment in China at about $ 250 billion since 1990 – not much more than double US investment in tiny Belgium over the same period ,

China is attracting less capital than either the United Kingdom or the United States, two mature developed economies that theoretically should offer fewer opportunities than China. Worrying: By far the largest source of nominal foreign investment in China ̵

1; 69 percent of all recipients – is Hong Kong. This money looks more like washed and recycled domestic Chinese money than real foreign investment.

China's trade surplus is the downside of its failure to attract foreign direct investment. It is an axiom of the national accounts that the current account balance (the trade balance plus foreign investment) must correspond exactly to the capital account (net foreign investment in one country).

The story that China's trade surplus could produce China's capital surplus turned around, to say how China's capital surplus produces China's trade surplus. And while the word "surplus" sounds like a good thing to a country like China, surplus capital is actually a very bad thing.

China's foreign investment works exactly as economic theory would predict: it yields much lower returns than it would if invested in productive companies at home. A 2008 World Bank study found that the average return on multinational investment in China was 22 percent. American multinational corporations earned even more, averaging 33 percent. China earns less than 3 percent for its immense holdings of US Treasury.

Congratulations to these successful multinational corporations operating in China. But remember: if people earn 22 and 33 percent of their investment, it means that it requires a very, very glittering incentive to get them to do something. A return of 10 percent would be considered a very good opportunity in Europe, Japan or North America – but not enough to overcome the reluctance of foreign investors in China.

This foreign reluctance is not nearly as threatening as the judgment of the Chinese themselves (19659002). In 1890, as the US rapidly industrialized, it was not every confectionery manufacturer's dream in Cleveland or a furniture maker in Buffalo to have a French passport for his To acquire children and a second home in Germany for himself. The American business class of the 19th century not only made a profit in the US, but also saw their future and their security here. When Chinese business leaders invest tens of millions of dollars in second homes in Vancouver or send their granddaughters to Los Angeles to give birth to US citizens, what do they say about their expectations of China?


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