APEC Ministers to Push Private Investment Drive

By , Staff writer of The Christian Science Monitor

TO Pete Schoening, the gathering of bigwigs in Seattle for the Asia-Pacific Economic Cooperation forum is ``very, very impressive.''

The dignitaries from APEC's 15 member economies might find Mr. Schoening's company equally impressive as an example of the kind of trade and investment they are trying to promote in the region.

Chemgrate Corporation, the company Mr. Schoening and partners run, is a small manufacturer of floor-grading used in manufacturing plants. With fewer than 70 employees at two United States plants, Chemgrate is a far cry from the big multinational corporations that are rushing to set up shop in China. Yet about a year ago Schoening and his partners opened a third plant in a free-enterprise zone near Shanghai, with about 25 employees.

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``There's risk in anything,'' Schoening explains when asked about the danger of political turmoil there. The incentive was to be there to supply floors for an expected factory-boom in one of the world's fastest-developing economies, as well as elsewhere in the Pacific Rim.

Rapid growth in the APEC economies (which include Australia, Brunei, Canada, China, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand, and the US) has been fueled by surging private investment by companies large and small. Meanwhile, regional stock markets, with the exception of Tokyo, have seen capitalization soar in recent years. The economic and foreign ministers meeting this week wants to ensure that such investments continue despite the global economic slowdown that has hit Japan and the US particularly hard.

Such investment historically stimulates production, consumption, and trade, all of which means expanding economies.

``Unless there is trade expansion, there will be no global economic growth,'' says Charlene Barshefsky, deputy US trade representative.

Some analysts say the US has been lagging in what is known as foreign direct investment, such as Chemgrate's China plant (as opposed to stock ownership in foreign companies).

Lawrence Krause of the University of California, San Diego, says direct investment has been a weak link for American policymakers, compared with three other components of global economic policy: trade, tourism, and immigration. ``We haven't been investing abroad,'' he says.

``When politicians talk about the sucking sound of jobs going abroad, that is bad economics,'' Professor Krause says, arguing that such investment ultimately expands the economic pie for all countries.

Asia-watcher Walter Hatch puts it even more bluntly: ``We must find a way to crash the economic party Japan is throwing in Asia, to more fully participate in the economic life of this region.'' This must be done with both foreign investment in the region and exports, he wrote recently.

To be fair, many US companies are already in East Asia or are becoming active there. China is a favorite for big firms eyeing a market of a billion people with rising incomes. Motorola is making cellular phones and computer chips in China, for example. America's direct-investment position in APEC members rose by almost $27 billion to $146 billion during the last four years.

Yet both Japan and America have been overshadowed as investors in China by the 55 million ethnic Chinese who live in neighboring countries, notably Hong Kong and Taiwan, says Heng-Pin Kiang, a Seattle trade attorney with the firm Perkins Coie.

Hard realities can hold companies back. In China these include an uncertain regulatory climate, a currency that is not fully convertible, and corruption, says David Bachman of the University of Washington.

Moreover, critics say there is good reason to be worried about American companies investing overseas. US-owned operations are among those that have helped China move from a trade deficit with the US to a huge surplus, perhaps $23 billion this year. University of Washington economist Charles Engel says trade tends to be good for America's high-skill workers, but ``at the expense of ... our less educated ones.''

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