China: A Quiet Move That Bears Watching

The world is witnessing a new stage in China's economic emergence. As many as 2,000 companies and investors with ties to mainland China have quietly established a presence in the U.S. market, opening up businesses and acquiring existing American companies.

Their goals are simple: to win access to capital and technology and to take advantage of booming trade ties. This phenomenon is just beginning. There are literally millions of Chinese enterprises at the central, provincial, and local level, and many more of them will attempt to go global in coming years as the Chinese economy continues to grow.

The surge in Chinese activity is already ringing some warning bells in the U.S. In at least one case, a company with links to the Chinese government has bought up a U.S. defense supplier. Companies associated with the People's Liberation Army have also been expanding their U.S. operations.

Moreover, this reaction is not simply a question of peculiarly American sensitivities. Mainland China's network is starting to operate overseas in the U.S. first, but the whole world will soon feel its impact. It is easy to see how the Japanese might perceive a threat from a sometimes shadowy Chinese collection of shell companies and Hong Kong front companies. Continental Europe could feel similarly about the potential new threat from the East.

Ultimately the move by Chinese companies into the global economy is a healthy one. The collective goal should be to encourage Chinese enterprises, of all varieties, to become more solidly tied into the rest of the world. If Chinese entrepreneurs feel they have a stake in continued open trade relations, that will increase the support at home for economic liberalization. Moreover, the presence of Chinese companies abroad will make it harder for China to wield arbitrary power against Western businesses operating in China.

But it's important to understand what's happening and ensure that Chinese enterprises play by international standards of financial disclosure. Companies owned by the Chinese government and military should not be allowed to disguise their ownership to win back-door access to sensitive technology. Full disclosure should be the rule, not an option.

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