Reference no: EM132194796

Question: As you consider your response to the two-part question above, be sure to consider the future of international management and WSJ articles below

Part A: What challenges do you see for the United States as China and other countries invest, and establish operations and ownerships in the United States.

Part B: From the role of international management, what future challenges/opportunities come to mind?

China’s Sovereign Fund Moving Ahead With U.S. Fund, Despite Tariff Fight

BEIJING—China’s sovereign-wealth fund said the trade battle between the U.S. and China isn’t derailing its plans to invest in American manufacturing, with the first round of funding for a dedicated multibillion-dollar venture close to completion.

China Investment Corp. and Goldman Sachs Group Inc. GS +0.04% formed the fund to invest in U.S. industrial firms and other sectors in November, part of a number of deals Chinese and U.S. businesses announced during President Donald Trump’s visit to Beijing. While some of those deals, such as Chinese purchases of U.S. natural gas, have been put on hold due to the trade tensions, CIC President Tu Guangshao said the fund’s launch is moving forward.

“Preparations for the fund have been going smoothly,” Mr. Tu said during a press conference Monday. “The first round of fundraising should be completed in the near term.”

The China-U.S. Industrial Cooperation Fund, as it is called, is targeting as much as $5 billion in capital. It is expected to have “less than” that amount after the initial round, Mr. Tu said. He added that the capital is coming from both Chinese and U.S. sources, without elaborating.

CIC and Goldman set up the fund as a way to show progress in a trade relationship that Mr. Trump has criticized as lopsided in China’s favor.

Since its formation late last year, however, trade tensions between the world’s two largest economies have escalated. Last week, the two countries each placed tariffs on $34 billion of the other’s exports—the heaviest exchange of fire in a trade battle that has been brewing for months.

Behind the U.S. tariffs is Mr. Trump’s stepped-up effort to reduce the U.S.’s trade deficit with China, which came to $375 billion last year, and to punish Beijing for what the U.S. says are pressure tactics on American businesses to transfer technology to Chinese companies.

Beijing has denied the accusations of unfair trade practices, called for negotiations and pledged to match the U.S.’s tariff measures dollar-by-dollar.

At Monday’s press briefing, held to present CIC’s financial results for last year, Mr. Tu sounded a positive note about the outlook for the U.S.-China economic relationship. Despite frictions every now and then, Mr. Tu said “nothing can stop” the economic ties between the two countries from deepening in the long run.

CIC, one of the world’s largest sovereign-wealth funds, last year posted a nearly 17.6% return on its foreign assets, which totaled about $320 billion. The record-high return was partly driven by strong equity markets in the U.S. and other developed nations.

Beijing formed CIC in 2007 to help diversify China’s mammoth foreign-exchange reserves from U.S. Treasurys and into other asset classes such as stocks, corporate bonds and private equity. As of 2017, the fund had generated a net cumulative annualized return of 5.94%.

In recent years, CIC has been casting an eager eye at U.S. manufacturing, highways, rail lines and other projects, looking to generate steady, long-term returns for the fund. In return, CIC officials say the fund can serve as a stable source of long-term capital for U.S. projects.

CIC has complained about what it says is an unfair review process by the Committee on Foreign Investment in the U.S., an interagency group known as CFIUS, and called on U.S. authorities to improve the transparency of the reviews. Late last month, the Trump administration backed away from plans to create tough new restrictions on Chinese investments in the U.S. and U.S. technology exports to China. Instead, it said it will continue to rely on CFIUS, which screens foreign investments to see if they endanger national security.

Mr. Tu said worries about CIC’s investments in the U.S. potentially endangering U.S.’s national security are “completely unnecessary,” saying that CIC is a long-term financial investor, which has no intention of seeking control of U.S. industries or companies.

Meanwhile, as to what kinds of challenges the CIC-Goldman industrial fund would face once it starts investing, Mr. Tu said, “we’ll wait and see.”