Foreign dollars at work

A Times Editorial
Published February 9, 2008

After a Chinese investor bought out a Pennsylvania wood products company, broker Yu Dan explained why the purchase was attractive: The dollar is weak and "the aboriginal people in the north Pennsylvania woods are good workers," Yu said. Once upon a time it was the United States that looked for cheap natural resources and labor around the world.

A record $414-billion was spent by foreign companies and governments last year to buy American businesses, property and stock. The Chinese government bailed out Morgan Stanley with $5-billion it had lying around from the goods it sells us. Some of the purchases were smaller, the Washington Post reported. A Chinese entrepreneur bought a South Carolina auto parts company with 100 workers, then increased operations to 24 hours until the workers on the new night shift complained.

Is there reason to worry about this new infusion of foreign capital? Probably not, at least for now. But federal regulators should keep an eye on "sovereign wealth funds," such as the Morgan Stanley investment, that are controlled by governments.

Most of the investments come from traditional partners. Canada has the most money invested here, followed by Western European countries, but our growing trade imbalance with China has left that country looking for a place to park its dollars.

We've seen this before. The Japanese splurged on U.S. real estate in the 1980s. The cultural dislocations can be jarring. Remember when a Japanese company bought the historic Belleview Biltmore Hotel in Pinellas County and added a modern pagoda to the entrance? The aboriginal people were outraged.

Yet foreign investment can be a godsend, as it was for Morgan Stanley after the subprime mortgage meltdown. Some 5-million Americans work for foreign companies here at home, nearly a third in manufacturing jobs that might otherwise be lost.

When those investments come from sovereign wealth funds, however, there could be reason for concern. Such funds are controlled by governments that may not have our best interests at heart, warns Sen. James Webb, D-Va. They may just be seeking profit, he said, or "they may also do so in order to further their foreign policy ambitions, to acquire national security assets or to purchase a stake in strategic industries."

Even if the United States gets its financial house in order with a higher savings rate and strengthened dollar, we're likely to remain dependent on foreign investment. That's not necessarily a bad thing, but it is a bitter medicine to swallow and we have to watch the dosage.