Comments on: Europe needs to screen Chinese investment

By: Gunter Dufey

Gunter Dufey — Mon, 24 Aug 2009 16:20:40 +0000

Neither of these comments is well thought out. As every MNC investor has learned, once you commit the assets, your are totally subject to the whims of the host country — at least since countries stopped sending the marines to safeguard investors’ properties in other countries. Neither of the articles (and many similar pieces before) spells out what exactly the foreign-government-owned investor will do?? Actually, the biggest danger are the disruptive effects that come from the destruction of economic value caused by incompetent management associated with foreign gov. owned companies trying to run business operations in a foreign country. Will someone please let us know what special skills PRC SOE management teams have in running Aussi coal mines?? We have had experience with Japanese investments in the US during the 80′s: they had no idea how to run golf courses in California and tall buildings in Manhattan. After a decade they were sold back at great losses, often to the original owners. Different story in the auto industry: the Japanese knew how to run assembly plants better than their local competitors and this is what made them succeed to this very day. Bottomline: FDI is not a matter of (financial) capital flows but the ability to manage business assets in unfamiliar (and often hostile) environments.
We do have an organization that addresses FDI issues; it has done so for a long time and is called the OECD; the United Nations also have an arm that occupies itself with such issues. We do not need a new institution but better understanding of that part of (micro-) economics.

By: Lincoln Fung

Lincoln Fung — Wed, 19 Aug 2009 06:53:47 +0000

It seems there is a fairly urgent need to have an international or world organisation to facilitate and oversee international capital flows or cross-border or foreign investment, given the magnitude and importance of capital movement internationally at present and into the future, and the likely increasing disputes or impediment or protections that affect the efficient allocation of global financial and physical capital resources.
There should be a set of agreed principles that govern international capital flows. The principles should be non-discriminatory in nature. National security may be a legitimate reason for some government intervention, but the rules governing it needs to be spelt out clearly and that should not be used as an excuse for discrimination at will by governments or politicians either economically, politically or racially.
There should be an international agreement on international investment and capital flows. One additional advantage of having an international overseeing organisation is to minimise the potential damages done by big speculative players in the international capital market.
Should different ownership be treated differently, given that all firms are under the regulation of a sovereign country? But it is an interesting and legitimate question and needs to be addressed openly and fairly.
One option for such an international organisation is to broaden the responsibility of and empower the WTO, so it would also serve as a forum for nations to settle disputes in international capital flows. Another option is to restructure the IMF and give it a new mandate on overseeing international capital flows.