By Derek Scissors

The Department of the Treasury has updated figures for US acquisition of foreign stocks and bonds organized by their true destination. This shows American spending on Chinese stocks and bonds reached $1.15 trillion by the end of 2020. At the end of 2016, the number was $368 billion. The $780 billion increase in investment in China under President Trump represents a miserable policy failure, a failure which has persisted under President Biden.

Among other things, the surge in what is termed portfolio investment mocks the idea of a “trade war.” From 2016 to 2019, prior to the pandemic, US imports of goods and services from China dropped all of $9 billion, or less than 2 percent. The latest data for 2021, with tariffs still in place, put imports on pace to be about $40 billion larger than 2016. These are afterthoughts compared to $780 billion in new investment.

Spending on Chinese stocks and bonds may have dropped in 2021, but this was due to action by the PRC, not the US. Beijing’s crackdown on private company stock listings likely discouraged some institutions. We won’t know for sure until late this year because Treasury refuses to publish accurate monthly or quarterly figures. Instead, it pretends the Cayman Islands and other offshore financial centers receive most US money, despite not having stock or bond markets.

There’s more we’re not allowed to know. For direct investment — not investing through stocks and bonds or taking a large stake — the Department of Commerce provides 15 sectors, with wholesale trade topping the list in 2020. There are many trade categories, from non-metallic mineral products to paints, coatings, and adhesives. For portfolio investment, there is no public information on the enterprises, technologies, and activities being supported.

It’s impossible to be sure where the huge sum of money ultimately goes. But the same is true for what we spend on Chinese imports. And it would be easy to report then publish information on the entities being initially invested in and their sectors of operation or distribution of assets. The latest US defense budget is $770 billion. What kind of policy can we have with no idea what that same amount of our money is up to in China?

There are legitimate arguments over whether and how to restrict American investment in the PRC. The Trump and Biden administrations began, belatedly and tentatively, to block funding of enterprises tied to the People’s Liberation Army. The number of firms sanctioned could reasonably be increased by a factor of five. In December, the Biden administration opened the door to banning investment on human rights grounds.

Chinese entities that have broken US law — in employing stolen intellectual property, for example — should also be off-limits. It seems obvious that American money shouldn’t help China develop advanced technology, just as export controls are supposed to prevent our companies from selling advanced technology. This leaves plenty of room for an important debate over what “advanced” means and how it changes over time.

There is no room for debate about greater investment
disclosure, at least for those genuinely concerned with the national interest.
Opposing greater transparency contradicts a core principle of free markets. On
top of harming policy-making, investing to help the People’s Liberation Army or
increase repression is immoral. Trying to permanently hide what and where
you’re investing in China is an anti-market and, possibly, an anti-American
activity.

Endless claims of “trade war” are merely lazy. The money that America has poured into the PRC makes clear the US was not serious about competing with China under President Trump. Under President Biden, we still aren’t even trying to show what those funds support. Yes, there have been valuable American policies. But they don’t stack up to $780 billion.

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