Beware of Chinese Bearing Gifts

The exponential growth of Chinese direct investment has been accompanied in some cases by controversy and even resistance, both in developing and in developed economies. Around the world, critics have expressed fears and denounced some of the potential dangers of this investment, such as lowering of local labour standards, hollowing out of industrial core through repatriation of assets, and acquisition of dual use technology. Alarmist media headlines have warned against a Chinese takeover of national economies one controversial investment deal at a time. The ensuing political backlash has often received considerable media attention and increased scrutiny over subsequent deals. What explains the political challenges posed by the spectacular explosion of Chinese direct investment over the past few years in the United States (US) and the European Union (EU)? How and why have attitudes and policies in the West changed over the past decade towards Chinese FDI? This chapter considers two alternative explanations for the political challenges triggered by Chinese investment in Western countries. The first is that Chinese FDI causes political unease because of its novelty. The second is the perception that there is something inherently different about the nature of Chinese FDI and therefore it should not be treated politically like any other foreign investment. These two explanations lead to a different set of predictions for the future of Chinese FDI in Europe and the US. The first section analyses how the novelty of Chinese FDI may pose political challenges to Western politicians and publics and compares the current phenomenon with past instances of political problematic sources of FDI. Section II examines the argument that there is something inherently different about Chinese FDI, notably as stemming from an emerging economy, a unique political system, and a non-ally in the security dimension. The third section explores the domestic political context in which these challenges are raised: in Europe, the euro crisis and the rise of populism; in the US, the focus on geopolitical competition and the rise of economic nationalism. The conclusion raises some implications of these political challenges on the future of Chinese outward investment.