Why is China really investing in the U.S.?

China’s interest in Gulf of Mexico oil leases and West Texas wind farms may seem a bit worrisome — don’t they already have a pretty good grip on our economy as our chief supplier of consumer goods and trillions of dollars in T-bill reserves?
But George Friedman, founder of Stratfor Global Information Services in Austin says there’s a more ominous reason to fear Chinese investment in the U.S.: It’s a sign China is following the same disastrous path as Japan in the early 1990s and other Asian economies in the latter half of that decade.
China’s economy is debt driven, meaning their banks primarily focus on having their loans repaid. This drives businesses to focus on creating cash flow, Friedman says, which they will do by any means necessary, even if it’s marginally profitable to unprofitable.
This growth-at-any-cost mentality has created a massive non-performing loan problem, Friedman says. But rather than letting companies with these bad loans fail – leading to unemployment — Chinese banks continue to lend to them.
“The terrific fear they have is unemployment,” Friedman said.
The China most westerners see is the one where some 60 million people live on $20,000 or more per year, Friedman says.
“But 600 million Chinese live on less than $1,000 per year. It’s actually an impoverished third world nation,” Friedman said. “Massive numbers of peasants have moved to the cities in recent years, so if they become unemployed they’ll get hungry very fast. That’s a serious threat to the stability of the regime.”
So what does this have to do with Chinese investments in the U.S.?
Essentially, so many of China’s domestic industries are crumbling that the last place Chinese investors want to park their money is close to home, Friedman says.
It was the same situation with Japan in the late 1980s and early 1990s, when investors from that country seemed to be buying up Western assets left and right, like the Pebble Beach golf resort.
“Was it a move about power? No, it was just they would rather have owned dirt in California than invest in Japan,” Friedman said.
But what about all the economic data that shows China continuing to grow? Friedman says the official government economic data that China produces is suspect at best. There’s too much incentive for local officials to goose the data they report to make them look good within the Communist Party hierarchy. And if there is growth it’s not likely to be terribly profitable.
“The Chinese economy seems to be heading down the well-travelled road that we’ve seen other economies go down now twice in the same generation,” Friedman said.