-
With new entrants from China, fresh capital could be made available to entrepreneurs and business owners who otherwise might fail to find financing. Also, remember the fears in the 1980s that the Japanese were buying up America?
July 11 -
The Federal Reserve Board's landmark decision to allow China's largest bank to acquire branches in New York and California is likely to trigger further expansion by Chinese banks into the U.S. market, according to Fitch Ratings.
May 31 -
In a letter to Fed Chairman Ben Bernanke, Sen. Robert Casey of Pennsylvania questioned whether Chinese banks will use state support to undercut U.S. competitors.
May 10
Imagine if China's leaders allowed U.S. banks to operate in China. And imagine if the U.S. banks, in contrast to pursuing their normal goal of maximizing shareholder value, sought to help the U.S. government gain geopolitical advantage and help U.S. firms compete with Chinese competitors. What actions would the U.S. banks take?
As agents of U.S. interests, they would probably share information from Chinese clients with U.S. policymakers and U.S. firms. They would lend money to U.S. companies at lower interest rates than the ones being offered to Chinese firms. They might even foreclose faster on Chinese companies that competed with favored U.S. firms.
Sounds preposterous, of course. U.S. banks are in the business of making money, not working on the sly for Uncle Sam.
But now reverse the situation. What if the U.S. allowed Chinese banks to operate freely in the U.S.? What if those banks pursued their normal goal of helping China gain geopolitical advantage and Chinese firms compete globally. What actions would the Chinese banks take?
Likewise, they would probably share information from U.S. clients with Chinese policymakers and competitors. They would lend money to Chinese companies at lower rates than the ones being offered to U.S. firms. The banks would act as agents of the Chinese government. And they would have China's massive dollar reserves at their disposal, giving them the power to underprice U.S. banks, manipulate interest rates and handicap loan-seeking U.S. firms.
Unfortunately, this second scenario is not so preposterous.
In May, the U.S. Federal Reserve
Federal Reserve chairman Ben Bernanke and other Fed governors, in giving unanimous approval, have put the U.S. at risk. In a
To quote Rand's analysts, "professional U.S. national security analysts" would argue that this "suggests a Chinese interest in acquiring information, contacts and connections that extend into the wide reaches of the U.S. economy and may reveal useful insights into its strengths and perhaps vulnerabilities."
Other national security analysts might ask: Will the Chinese state-owned banks aid in cyber-warfare during tough times? Will they finance the Chinese government's acquisition of U.S. firms with sensitive technologies or critical nodes in our information superhighway that might make America vulnerable to monitoring or shutdowns of critical banking, electrical or other systems? Will they help China acquire critical American raw materials for China's use only?
Bankers should appeal to Congress and the U.S. Treasury Department. As I argue in my just-published book "
Don't think China's banks won't favor Chinese interests. Look at a few clients cited in a report by the U.S.-China Economic and Security Review Commission: Sinopec Corp., China Southern Airlines and China Telecom. In 2010, when China's prime lending rate was 5.36%, Sinopec enjoyed an average short-term interest rate of 2.7%. China Southern Airlines reported a maximum interest rate of 1.97%, and China Telecom received rates as low as 3.5%.
Perhaps the U.S. Treasury Committee on Foreign Investment in the U.S. should look closer at the Chinese bank approvals. The Treasury can stop these deals before Chinese banks are able to push their government agenda.
Following the Fed's May approvals, Rand analysts
If China continues to enjoy the Fed's clearance, its banks will not only use just Chinese depositors' money to pursue its state agenda. They will use Americans' money.
We can imagine a better future. China blocks U.S. banks from operating in China. The U.S. should do the same to Chinese banks. The rule: Only Chinese banks free from Chinese government ownership and control get clearance to enter U.S. markets. We have nothing to gain in giving China and the Chinese Communist Party the keys to the U.S. banking system.