Why China’s Exports to North Korea are Growing

China’s exports to North Korea grew nearly 20 percent in the first half of the year, according to the Korea International Trade Association on Wednesday, despite its promises to crack down and impose international sanctions.China’s exports to the

Source: Beijing’s exports to Pyongyang swell 18%-INSIDE Korea JoongAng Daily

 

This should come as a surprise to no-one.

Beijing’s endgame with North Korea is clear: drain Pyongyang and its leadership regime – the Kim family – of every last penny of hard currency or valuable goods possible. Then, and only then, bring down the boot, and on Beijing’s terms, not Washington’s.

The Infrastructure Thing

More than half of Chinese infrastructure investments have “destroyed, not generated” economic value as the costs have been larger than the benefits, according to researchers at Oxford university, a finding that will fuel debate over the viability of China’s infrastructure-heavy growth model.

Source: China infrastructure investment model under fire – FT.com

A fascinating article, and a reasonable proposition. Except for three things.

First, China remains short of infrastructure in key areas. A few examples: freight rail remains in desperate need of an upgrade; highways are groaning under the load of China’s car-crazy masses; and the power grid needs a switch to sustainable energy sources before coal chokes the country. As such, spending on new infrastructure per se is not necessarily misdirected.

Second, much of the infrastructure that has been built over the last thirty years is either worn out or was poorly built in the first place. The Chinese slang term “tofu construction” refers to just this phenomenon, and news reports offer discouragingly regular examples of underbuilt architecture.

Finally – and perhaps most important – most infrastructure (at least, the bits not made out of “tofu,”) is designed to last for a long time, often dozens of years. Any ROI calculation taken soon after completion is likely premature. By design, infrastructure should precede development, and is often the impetus of wider economic activity. Thus the effect of any given project on the wider economy is often impossible to gauge until long after construction.

Waste and graft permeate infrastructure development in China, and the government would do well to avoid dependence on infrastructure spending for growth. That said, more well-managed and thoughtful investment in infrastructure is needed, and will be for a long time.

And one last thought: better for reasons both economic and political that the government’s Keynesian spending goes into infrastructure that is ahead of its time than into military hardware and facilities.

 

Mincing Words on Chinese FDI

China Invests (Somewhat) More in the World
Derek M. Scissors
American Enterprise Institute 
January 2014

In a deep-dive based on the data produced by the American Enterprise Institute and Heritage Foundation in their China Global Investment Tracker, Derek Scissors shows us how large China’s foreign direct investment effort has become and how fast it is growing. By the end of 2015, if all things go as expected, China will surpass $100 billion per year in funds invested overseas.

The numbers are large, but when measured against other capital flows in the past, not yet at a level which should concern average Americans. Indeed, there are significant benefits from such investments. Nonetheless, Scissors suggests, we should not assume all Chinese FDI is a good thing. He joins a growing chorus of voids suggesting that national security, the growing role of China’s state-owned enterprises, and genuine reciprocity should guide policymaker approaches to Chinese FDI as much as economic benefit.

Scissors does a superb job at laying out the key issues, and I especially liked his nuanced approach to SOEs. Disappointingly, he stops short of suggesting a framework that would allow us to distinguish Chinese investments that should be welcomed, and those that should be rejected. Reading between the lines (and in keeping with AEI’s economic approach), Scissors is more concerned about debating the laissez-faire end of the business community who would prefer that government simply got out of the business of regulating Chinese foreign investment.

A worthy roundup of the issue.

To Fix China, Fix Her Cities

“The Urbanization Solution”
Lu Mai
Government Designed for New Times
McKinsey & Co.

2012

China is on the back end of the largest and most rapid urbanization in the history of mankind. In the past 30 years, the nation’s population has gone from being 80% rural to over 60% urban. Lu Mai, Secretary General of the China Development Research Foundation and an expert on rural affairs, pens a forthright essay saying that China should stay the course: the more people you move to the cities, the more manageable China’s problems will be.

At the same time, Lu doesn’t want forced relocations. The market is the best mechanism to drive the process, he says. The appropriate role for the government is to serve as an enabler, making the process of integration into the cities as smooth as possible, and ensuring that migrants are provided the necessary services and statuses to make their shift from the countryside as smooth as possible.

Lu is wise enough not to call for the outright elimination of China’s hukou household registration system. Doing so would touch politically sensitive nerves, come across as slightly wild-eyed, and anyway would miss the point. Lu’s focus is on outcomes: get people into the cities, and anticipate and address the challenges this is going to create for municipal governments and the migrants themselves.

A quick read, but a good one.

China and the Money Diversion

China After Tian’anmen
Perry Link
The New York Review of Books
31 March 2014

Those among us who watch these sorts of things, but who don’t talk about them, share a quiet understanding that 2014 is one of those little anniversary years in China.

The fourth of May marks the 95th anniversary of the May Fourth Movement, a 1919 grassroots nationalist campaign protesting the Chinese government’s handling of the Versailles treaty, a key event in the history of the Chinese revolution. The first of October marks the 65th anniversary of the founding of the People’s Republic of China; and the fourth of June marks the 25th anniversary of the incident in Beijing’s main public square in 1989.

It is perhaps this latter milestone that inspired Rowena He to pen her new Tiananmen Exilesand that inspired Perry Link to write the foreword to that book. The foreword is excerpted in Link’s NYRB essay.

In his article, Link takes us through the background of China’s modern social contract: the shock of the June 4th incident was followed by a concerted effort on the part of the Party to shift the nation’s focus away from politics and toward prosperity. Commerce, opportunity, rising living standards and the social stability that made all of them possible absorbed the attention of the nation for the next two decades. The quid pro quo, of course, was that the people would not ask hard questions of their leaders.

For a generation, this approach has yielded great success as China’s economy continued to rise on the back of consistent and high economic growth. But the number of people enjoying consistently rising standards of living is falling, and the nation faces simultaneous crises in both the environment and ethics. As Link notes:

At a deeper level, though, Chinese people (like any) do not feel secure in a system built on lies. The wealthy send their money abroad—and their children, too, for education. In 2013 several surveys and reports showed sharp increases in the plans of whole families, especially among the wealthy, to emigrate, and there is no reason to think that poorer people would not follow this trend if they had the means.

The nation’s most prosperous are turning into a quiet flood of refugees to societies with rule of law, strong ethical systems, and who place limits on opportunity in favor of a better lifestyle.

Link summarizes a narrative familiar to many of us. It does more than simply justify the current silent exodus: it sets the stage for the next act in China’s economic and political evolution.

Prospects for the Shanghai FTZ

The Role of Economic Development Zones in National Development Strategies: The Case of China by Wang Xiao is a doctoral dissertation submitted to the Pardee Rand Graduate School. The author takes a methodical, data-driven approach to determine the extent to which economic development zones actually helped China’s development, when they did so, when they were less helpful, and what makes for more effective zones. The conclusions offer a hint as to the prospects for Shanghai’s much-ballyhooed Free Trade Zone to help in China’s search for an economic second wind.

Lies and Damned Lies

In “How to Make China More Honest,The Heritage Foundation‘s Derek Scissors contends that Chinese statistics are little more than politically-motiviated lies. He suggests that this means that the “Chinese miracle” could be part of the grand fib. More to the point, though, he says that the only way to keep China honest is to collect enough data about China to give lie to its own prevarications, and use that data to undermine China’s propaganda. The challenge, of course, is how to collect that data if China really doesn’t want you to do so.

What is Beijing Thinking?

 

English: Profile image of Hu Shuli

English: Profile image of Hu Shuli (Photo credit: Wikipedia)

China 3.0
Mark Leonard, et. al.
The European Council on Foreign Relations
November 2012

Those of us watching the goings-on in Chinese politics have been treated to the non-fiction equivalent of a byzantine soap opera over the past two years. The unexpectedly turbulent generational leadership transition has given us opportunity to speculate ad nauseum about who was going to get what seat, a debate doubly invigorated by the drama surrounding Bo Xilai‘s metoric rise and fall.

But the seats are filling, the slate of leaders is falling into place, and our attention turns from personalities to policies. What, exactly, are those leaders going to be doing for the next ten years?

President Xi Jinping and Premier Li Keqiang have begun to lay out their policy priorities, but there are few surprises or insights to be gleaned from public positions. Of far greater interest are the debates taking place within government and the nation’s intelligentsia over the path to take in the future. As James McGregor summarizes in his recent book No Ancient Wisdom, No Followers, for the first time in generations the path forward for China is unclear, there are contending schools of thought at the top of the Party organization, and China lives under the threat of indecision and paralysis in Beijing.

Which is why this slim volume, edited by Mark Leonard, c0-founder and director of the European Council on Foreign Relations, is such a valuable survey. Rather than focusing on the dramatics, Leonard’s line up of scholars and observers (including Caixing’s Hu Shuli and blogger Michael Anti) focus on how the debates around finding that way forward are playing out.

In the course of a dozen pithy essays we are treated to a glimpse of how the nation’s leaders are thinking about the future of domestic politics, the economy, foreign policy, and the search for models from which China can glean its own pathway to the future. Most of us will never get a chance to sit in the halls where these decisions are being made, but in China 3.0 Leonard and the ECFR have given us a chance to sit outside the door and listen at the keyhole, all while being treated to the perspectives of 17 of China’s own most astute observers.

Finding Innovation in Dark Corners

“Global Technology Sourcing in China’s Integrated Circuit Design Industry: A Conceptual Framework and Preliminary Findings”
Dieter Ernst and Barry Naughton
East-West Center
August 2012

For nearly a decade, Chinese policy-makers have been on a seemingly Quixotic quest to turn the nation’s low-cost manufacturers into innovation-driven firms. The question that has plagued that effort from the start is whether Beijing’s “indigenous innovation” drive isn’t just a form of techno-protectionism, and if not, whether and how policy might actually aid in the emergence of world-class innovative firms.

That question remains largely unanswered, but Dieter Ernst and Berry Naughton have gone looking for answers in China’s integrated circuit design business. What the paper reveals is an example of how innovation is taking place outside the purview of government industrial policy, calling into question the value of centrally-driven strategic emerging industries.

A growing body of evidence suggests that the ship of state capitalism will founder on the rocks of innovation. The emergence of the new and the novel from overlooked quarters offers a reminder of the agrarian entrepreneurialim that emerged in 1980s China when Deng Xiaoping simply lifted the heavy hand of central planning. Ernst and Naughton’s study seems to points the nation toward a more productive approach to industrial innovation, yet one that would sorely test the natural interventionist urge of Party aparatchiks.

China’s Self-Serving Illusion

A 21st Century Myth: Authoritarian Modernization in Russia and China
Lo Bobo and Lilia Shevtsova

Carnegie Moscow Center – Carnegie Endowment for International Peace
July 2012

In this short yet thought-provoking work, Carnegie researchers Lo Bobo and Lilia Shevtsova offer what is certain to become a controversial point-of-view, and then likely a growing meme: despite apparent success in the wake of the global financial crisis, the promise of state capitalism is a self-serving illusion.

On China in particular, the authors suggest that the “Beijing consensus” has created success under exceptional circumstances. Far from being an economic model that other countries can emulate, China’s authoritarian modernization is quite likely unsustainable in China itself.

Rather than succumb to gloom and doom, the pair point a way forward. China’s economic success is actually based on economic liberalization, bottom-up reform, and central government improvisation. My reading of Huang Yasheng‘s brilliant (albeit overlong) Capitalism with Chinese Characteristics suggests that Lo and Shevtsova’s argument has merit.

The book argues gently, but the subtext is clear: the recommendations made by the World Bank in their China 2030 report are probably too mild: more must be done to save the Chinese economy from stewing in the juices of economic stagnation, 7% growth notwithstanding.

The authors also make a pointed case to the west: we should not kid ourselves that the biggest threat to Western economic liberalism is authoritarian capitalism. Rather, it is our hesitation to address and repair the fundamental problems that have led to the current crisis.

An excellent read.

Henry Paulson, China, and the Atlantians

PaulsonHenry

PaulsonHenry (Photo credit: Wikipedia)

“A New Framework for US-China Economic Relations
Henry M. Paulson, Jr.
The Atlantic Council
July 17, 2012

One part of former Treasury Secretary Henry M. Paulson Jr.‘s legacy that should have survived the ravages of the global financial crisis was the Strategic Economic Dialogue (SED,) a forum through which China and the United States could move their economic relationship forward.

The SED continues (most recently last April), but Mr. Paulson is apparently distressed by the crumbling public consensus behind the America’s commercial and financial relationship with China and how that is undermining progress. In his most recent paper, “A New Framework for US-China Economic Relations,” he calls upon the next president (presumably, for the Republican Paulson, Mitt Romney) to rebuild that public consensus, and to move the relationship forward on five “principles” or goals.

The goals are certainly admirable: unlock the promise of capital and cross-investment; assure financial markets that are transparent and have strong oversight; work to strengthen market confidence in both economies; free up bilateral trade, and help technology flow more efficiently and promote innovation. In the process, Paulson supplies a laundry list of things both China and the US must do to achieve those goals.

Unfortunately, the paper stops here. Leave aside that most, if not all of this, is nothing new. We have been handed a bucket of dreams and no direction on how to attain them. It is almost as if Paulson, a man for whom the past two decades have involved setting and gaining agreement on goals and delegating the details to underlings, has forgotten that there is more to success than simply setting objectives.

Worse, Paulson makes the common mistake of isolating the economic aspect of the Sino-US relationship from everything else. That may have been possible once: it is no longer. China’s behavior in the South China Sea cannot be isolated from America’s willingness to allow China to invest in US petroleum companies. Our willingness to sell China technology cannot be divorced from their failure to protect IPR or Beijing’s willingness to abet hacking. Taking anything less than a holistic approach to the relationship is naive at best, foolhardy at worst.

Unimaginative and impractical, the result is an effort that amounts to little more than Paulson trying to keep his name attached to China policy.

The paper also reflects badly on the Atlantic Council. Something that has been clear for nearly three decades is that the doyennes of the Atlantic Civilization remain ill-suited by preparation, prejudice, and worldview to navigate the west through the ascent of the East. That the Atlantic Council would be the organization through which Hank Paulson would publish this feel-good list of policy prescriptions is illustrative of that disconnect. Wiser heads – especially those who live and think in greater proximity to the vermillion gates of Zhongnanhai, – would undoubtedly offer a more realistic course of action.

Is China Facing an Unequal Future?

The End of ‘Growth with Equity’? Economic Growth and Income Inequality in East Asia”
Wang Feng
Honolulu East West Center
8pp

In a concise paper, Wang Feng makes an argument for government intervention in China to stem the growing economic inequality in the country.

For those who are uncomfortable with the idea of government intervention, Wang argues that the government (especially in China) can create the conditions for growing inequality. Wang’s implication is plain: the Chinese government has, knowingly or otherwise, fostered the circumstances that have allowed for unsustainable inequality to build. Government action is essential to address the root causes of that inequality.

Wang pulls no punches when it comes to naming culprits. Unless state-owned monopolies are broken up and the concentration of economic power in the hands of the state brought to an end, inequality will continue to grow and instability will result.

This paper is superb read that is refreshingly bereft of technical economic language, makes a clear case for an even more extreme course of reform than the World Bank’s China 2030 made five months ago.

How is Population Hurting Asia’s Progress?

“Population Aging and Economic Progress in Asia: A Bumpy Road Ahead?”
Andrew Mason and Sang Hyop Lee

East-West Center
http://www.eastwestcenter.org

Andrew Mason and Sang Hyop Lee explain that countries in both developed and developing Asia face a triple threat of an aging population, declining family support for aging family members, and the lack of government programs to support the aging, and tell us why and how that is going to put an end to Asia’s economic miracle. That is, unless the region’s leaders can figure out how to change policy and economic direction to address the issue.

Marketers and Six Hundred Cities

English: The skyline of Shanghai, China.

English: The skyline of Shanghai, China. (Photo credit: Wikipedia)

Urban world: Cities and the rise of the consuming class
by Richard Dobbs, Jaana Remes, et al;
McKinsey Global Institute, 77 pages

Richard Dobbs and Jaana Remes at the McKinsey Global Institute have just released a survey of the world’s cities that provokes some interest. The core of the report is the authors’ list of 600 municipalities that will drive some 65% of the world’s growth in the coming years. Given the global trend toward urbanization, the conclusion that cities will drive most of the world’s growth doesn’t come as much of a surprise.

What makes the report worthwhile is two features. First, the authors avoid the temptation to be simple boosters, pointing out that the economic importance of cities does not mean that their success as municipalities is foregone. The authors place a deep emphasis on making the growth gradual and sustainable rather than explosive.

Second is the list itself. Anyone selling to consumers around the world and planning on where to focus efforts in distribution and retail needs to have this report close at hand. While 600 cities sounds like a lot, China alone has 550 identified cities, so any list that will narrow down a marketer’s job to as few as 600 cities is a gift.

The report is available on McKinsey’s website.

China’s Future: The World Bank Chimes In

 

SHARM EL SHEIKH/EGYPT, 19MAY08 - Robert B. Zoe...

Image via Wikipedia

China 2030: Building a Modern, Harmonious, and Creative High-Income Society.

That China’s economy and polity are at an historic crossroads is so often repeated these days that it has become a truism. The question that faces prognosticators is what China should do about it. Even if the lessons of economic development of one country could be applied to another, the scale, speed, and urgency of China’s economic challenges seem push the nation’s leaders onto an uncharted course.

So what to do?

In joint effort with the Development Research Center of the State Council, The World Bank has produced a China 2030: Building a Modern, Harmonious, and Creative High-Income Society laying out a series of macro-level recommendations to address the issues China’s economy is facing over the next 20 years. What the framers of that report mean, of course, is that China faces these challenges today, but it is impolitic to suggest as much. (To suggest that the United States could also use such guidance would be similarly impolitic but no less accurate.)

What is compelling (read “different”) about this report is the participation of the Chinese government in the process. For that reason alone, the report is worth the read for the insights it should give into the kind of forward thinking that is “permissible” in the current policy environment.

The work has already been criticized for not addressing CCP politics and the role of the Party in the policy process. What I wonder about is the extent to which the World Bank was compelled to pull its punches on its recommendations

in order to retain the government’s participation. At a conference reported by Bob Davis ofThe Wall Street JournalWorld Bank Group President Robert Zoellick was fairly optimistic about both the resilience of the Chinese economy (“stress points will expand over time rather than turn into a crisis”) and about the possibility that some if not all of the reports recommendations would be carried out (“I think that in some form you’ll see this move ahead.”) That does not sound like a man doling out bitter medicine.

If the medium is the message, though, and this report does have legs, it may be as important as China’s own vaunted 12th Five Year Plan in helping to divine the future of China’s economic policy.

The People’s Republic of China’s Currency and Product Fragmentation

The People’s Republic of China’s Currency and Product Fragmentation. Economist Nobuayuki Yamashita of the Asian Development Bank Institute makes a case that even if China unilaterally adjusted its exchange rates that there would be no major effect on trade deficits. An argument unlikely to make friends in Washington, but Yamashita backs up his contentions with numbers.

China’s Uneven Rise

China’s Petroleum Predicament: Challenges and Opportunities in Beijing’s Search for Energy Security | Andrew S. Erickson.

Tip of the hat to Andrew Erickson for catching this excellent essay in Jane Golley and Ligang Song’s new Rising China: Global Challenges and Opportunities (PDF). Kennedy’s chapter focuses on the China’s growing dependence on imported energy, and stands out in this excellent compendium.

As for the book, Golley and Song have made it downloadable, and it is well worth it. Arguably, the most vexing challenges China faces are domestic, but Rising China focuses on the international points of friction that are likely to be exacerbated by domestic politics.

The list of international challenges generated by this work is by no means comprehensive: such an inventory would require a bookshelf, and a full review of China’s security challenges would occupy a wall. Nonetheless, the authors – both Chinese and foreign – have created a catalog of the most critical issues, and one that lacks the demagoguery and angst of less scholarly studies.

The MoC, the PBOC, and the RMB

China’s Exchange Rate Politics | Center for Strategic and International Studies.

In a study subtitled “Decoding the Cleavage between the Chinese Ministry of Commerce and the People’s Bank of China,” Charles Freeman and Wen Jin of the CSIS explain how those two ministries are the lead protagonists in the battle over both currency revaluation and the restructuring of the economy.

The scholars do not reach any specific conclusions, but they do lay out the respective views of the two agencies, their roles in the debate, and in so doing attempt to determine how the debate will translate into concrete policy.

If you read the headlines in China, the PBOC seems to be winning: the RMB is on a gradual devaluation path, and factory owners in eastern China (especially Wenzhou) are feeling the pain. What makes this study particularly interesting, though, is the hints it offers as to how currency policy might change in the face of major domestic dislocations.

What I like best about this short but sweet piece is that it properly frames the debate over the valuation of the RMB as a domestic Chinese debate, not a global one. The government is not a monolith, and Americans who seek the devaluation of the RMB have allies in China.

Brookings on China’s Development and the 12th FYP

China’s Approach to Economic Development and Industrial Policy – Brookings Institution.

In testimony to the U.S.-China Economic and Security Review Commission on June 15th, Brookings Institution Senior Fellow Eswar Prasad discusses China’s 12th Five Year plan and the challenges China will face in restructuring its economy.

Where he and I differ somewhat is in his belief that the transition will slow China’s “rebalancing” program. As I’ve argued in Silicon Hutong, the policy dislocations in China’s modern leadership transitions are actually less extreme than those in the past or elsewhere. I suspect movement will proceed in most of the directions Prasad discusses, and several he skips in the interest of brevity.

A superb summary, though, and highly readable at that.

Demographics and Global Security

Strengthening bonds between Indian, U.S. Soldiers

Image by The U.S. Army via Flickr

When I was in high school, I had a European History teacher who explained to us how countries with an large cohort of breeding-age young men relative to the rest of the population were more likely to make war on their neighbors. The argument was simple: too much young testosterone lying around was a sufficient domestic political liability that it needed to be spent in the advancement of national interests abroad. Hence, war.

I have always found this a tad deterministic, so I was pleased to see Martin Libicki and his co-authors publish Global Demographic Change and its Implications for Military Power. While the authors stop short of a full debunking of the population pressure theory of war, they analyze it in a modern context, incorporating historic data and using data to call into question the prospect of a future (2011-2050) conflict driven by “too many boys.”

The examination is thorough and convincing, but I have to wonder whether or not India’s growing working-age population vis-a-vis China will not, at some point, offer India a manpower advantage over China in any trans-Himalayan conflict. China’s effort to control its population and put its young people to work in more productive pursuits has been admirable, but India has not kept up to the same extent by either measure. Left with lots of young people, would not India choose to reclaim disputed territories on the Chinese border versus allowing their frustrations to fester into sectarian violence?

An excellent and worthy read, especially for those of us focused on Asian security.

Fixing Europe’s Income Inequality

As part of a wider policy response to the Global Financial Crisis, the European Union is in the process of forming policies designed to reduce income inequality in the region. In a growing number of countries, the threat of severe poverty is starting to emerge.

Social welfare programs come easily to the fore in Europe, as the EU lacks the kind of concerted political opposition to such programs as grew in the U.S. during the Cold War. Domestic political coalitions in Scandinavia, Germany, France, Spain and Greece have helped make government largess the primary means of delivering economic justice. As Greece has discovered, down that path lies danger.

In the book Life after Lisbon, Christian van Stolk and his colleagues suggest that the EU would be unwise to rely on forced income redistribution as a means of addressing the problem. Instead, the authors urge Brussels to focus instead on maximizing opportunity and productivity for individuals, and they offer a course of action to achieve that.

As Europe’s budgets come under pressure, approaches like these are likely to have a greater effect on policy than they might have had even five years ago. As such, this book provides an interesting look into how Europe my rethink its labor, economic, and industrial policies in the coming years.

How Good is the US Foreign Investment Review Process

The United States has a long-established system for reviewing foreign investments in the United States, a process that is understandably highly political given both self-interested protectionism and legitimate national defense concerns that grapple with the interests of entrepreneurs and shareholders seeking greater opportunity or a simple cash-out.

China’s growing hunger for offshore investments has already begun testing that process, in particular with Huawei‘s recent attempt to snap up the leftover assets of a bankrupt technology startup in California. Huawei’s application – filed after the fact – was rejected, and it seems likely that more Chinese companies will face challenges as they attempt to use acquisitions as a pathway to globalization.

At some point China is likely to want to cast a global spotlight on the U.S. foreign investment review process (and would have done so sooner but for the attention it would have brought to its own), and when it does, the Committee on Foreign Investment in the United States (CFIUS) will find itself under global scrutiny.

Following the 2006 controversy around Dubai Ports World and its attempt to acquire the U.S. port operations of P&O Steam Navigation Company, Alan Larson and David Marchick at the Council on Foreign Relations conducted a study on the U.S. foreign investment review process and the CFIUS in particular. The recommendations made in Foreign Investment and National Security: Getting the Balance Right suggest that the U.S. needs to ensure that the process remains sheltered from political and commercial interests, remaining a purely national security issue.

At its heart, though, the short book is a reasoned defense of what the authors clearly believe to be a fair process, if not quite a model for similar processes overseas. Their greatest concern is in the matter of transparency, and it is worth dwelling on that for a bit.

China is in the habit of rejecting foreign investments with greater frequency, an expression of an all-but-explicit national industrial policy that implicitly questions the value of foreign ownership of Chinese companies. That foreign firms continue to pursue acquisitions of healthy Chinese corporations in blithe ignorance of this policy implies either willful ignorance on the part of executives, legal counsel, and investment banks, or that it is time for China to be more transparent in the criteria it uses to evaluate foreign investments.

A fair case could be made that the CFIUS is less interested in transparency than it is in national security, and this is fair. But if the cross-border flow of investments and ownership are to continue between the world’s two largest economies and the ties that bind them to a common interest are not to be severed, the CFIUS must ensure that it offers the greatest transparency possible consistent with national security.

For this reason alone, Larson and Marchick’s work deserves detailed review.