Fifteen years ago, when Japanese companies were busily buying up chunks of corporate America, I was one of those urging Americans not to panic. You might therefore expect me to offer similar soothing words now that the Chinese are doing the same thing. But the Chinese challenge - highlighted by the bids for Maytag and Unocal - looks a lot more serious than the Japanese challenge ever did.
There's nothing shocking per se about the fact that Chinese buyers are now seeking control over some American companies. After all, there's no natural law that says Americans will always be in charge. Power usually ends up in the hands of those who hold the purse strings. America, which imports far more than it exports, has been living for years on borrowed funds, and lately China has been buying many of our I.O.U.'s.
Until now, the Chinese have mainly invested in U.S. government bonds. But bonds yield neither a high rate of return nor control over how the money is spent. The only reason for China to acquire lots of U.S. bonds is for protection against currency speculators - and at this point China's reserves of dollars are so large that a speculative attack on the dollar looks far more likely than a speculative attack on the yuan.
So it was predictable that, sooner or later, the Chinese would stop buying so many dollar bonds. Either they would stop buying American I.O.U.'s altogether, causing a plunge in the dollar, or they would stop being satisfied with the role of passive financiers, and demand the power that comes with ownership. And we should be relieved that at least for now the Chinese aren't dumping their dollars; they're using them to buy American companies.
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