Chinese investment in the U.S. market is a hot topic. U.S. companies and entrepreneurs are trying to understand the best way to access Chinese financial resources in order to leverage their potential.  Chinese investment in the U.S. market amounted around $6.5 billion in 2012 and growing. As a new administration is taking over in China, it is a good opportunity to reflect on the potential impacts on Chinese interest in the U.S. market.

The Chinese Ambassador to the U.S. in his welcoming reception said it explicitly with respect to China-U.S. relations 3 weeks ago: “What has been driving our relations is the ever-expanding converging interests between our two countries…together, China and the US account for one-third of the world’s economy, one quarter of the world’s population, and one-fifth of the world’s trade volume. To keep a healthy, stable and growing relationship is not only a must for our two countries, but also a shared commitment to the international community that we have to fulfill together.”

Yet, in recent polls Chinese investors rank the U.S. as the toughest place to conduct business and U.S. regulation as the second most challenging factor driving an investment decision. 2012 was the first time the U.S. President blocked a deal by a Chinese buyer (the Rolls Corporation), and Huawei and ZTE have been subject to intense investigations by U.S. Congress. The U.S. Administration imposed new tariffs on many new Chinese products, such as solar panels. I had the opportunity to address both Chinese and Americans audiences on this topic recently and people are quite concerned.

It is not the place to list all the benefits of outbound Chinese FDI into the U.S. market. It is sufficient to remind ourselves of the need to circulate the significant U.S. dollar foreign exchange reserves in China and the structural liquidity challenges in the U.S. market, among other factors. Investors wonder what needs to be done to make sure that the rising Chinese FDI trend will continue in spite of all these bumps on the road. Here is some food for thought.

First, the U.S. and Chinese Authorities do not agree on the methods and numbers behind calculating Chinese foreign direct investment in the U.S. A better coordination and agreement will provide parties on both sides with better data necessary for investment decisions.

Second, Chinese investors approaching the U.S. market are bombarded with counsels and advisors, especially since they perceive the U.S. regulatory framework as highly complicated and often unclear. Reliable advisors are a critical component. Some institutions do help in this process, such as the Chamber of Commerce and the new SelectUSA program of the Department of Commerce, but in general the introduction process to the U.S. market is too fragmented, de-centralized, and inconsistent. While we understand the unique characteristics of the Chinese business culture and its information sharing practices, advisors should avoid over-promise and under-deliver, since, in reality, Chinese investors do present unique opportunities and challenges in the U.S. market, and unreliable experience could negatively impact interest on the Chinese side in the future.

Third, the CFIUS process that screens potential acquisitions in the U.S. involving control in sensitive industries should be more transparent, providing Chinese investors with the clarity and consistency so needed for corporate decision making. The perception that any interest in the U.S. market can turn into ‘sunk costs’ does not create a healthy investment environment. If certain industries are practically closed to Chinese investors, they should know about it in advance to reduce costs, time, and efforts. Russia adopted similar rules in their ‘strategic industries’ legislation. U.S.’ commitments to international economic obligations, such as the WTO rules, are not always reflected in governmental administrative decisions.

Finally, the Chinese investment process tends to be slower, step-by-step, building upon trust and relationships. Americans are looking for a quick fix, seeking financial returns. It requires a considerable mental shift before the FDI levels rise significantly.

The new Chinese administration and the new political and economic team in the U.S. can play an important role in sharing their stories and frustration with U.S. companies. This is the time to help the FDI Chinese story in America to gain some momentum. We all should be part of this story.

The previous Israeli government initiated several structural and economic reforms in order to respond to local market’s demand. It restructured the off-shore drilling market, for example, and proposed legislation that separates real holdings from financial holdings. While these reforms can improve Israeli economy’s performance in the long run, it has been perceived by many foreign investors as a sign of policy inconsistency, protectionism and business ambiguity. Will this trend continue, and how can the Israeli government respond?

The need to respond to local political forces post-election would likely empower many of these reforms. Since the legislation process and its implementation may take several years, it would leave many foreign investors in an uncertain position. Moreover, the potentially over-fragmented and fragile new coalition might not last long enough to adopt many of its own proposed laws and reforms. It is a fact; very few Israeli governments reached their full term.

Another important factor to keep in mind is Israel’s macroeconomic circumstances. Deficit is high and a potential recession is looming, which would probably lead to higher corporate taxes and less incentives available for foreign investors looking for tax havens. Last year Israel rejected Intel’s proposal to build another new plant in Israel for significant subsidies and a tax break. Intel invested in Ireland instead, and positive results are already being reported there. The increasing military conflicts in the Middle East following the ‘Arab Spring’ would reduce the chances of serious budget cuts in Israel. Another military conflict in the North may lead to an even higher budget in 2013-2014.

All the same, local companies could use all the foreign financing they could get. A shrinking corporate sector and structural reforms may force many companies to look for new sources of funding abroad. Low valuations and an attractive developed regulatory environment may trigger a wave of investments by leading Western and Chinese multinational corporations. It will be Israel’s responsibility to assure foreign investors that they are welcome and secure a stable and consistent economic and regulatory environment.

Recent precedents are not encouraging, though. A potential transaction between Potash Corp., a leading Canadian manufacturer of fertilizers, and CIL, an Israeli public company and a world leader in the potash industry, has created a stir, accompanied by mixed feelings. While many think that merging a leading Israeli potash corporation into its large Canadian competitor reflects very well on the strength and promise of the Israeli market and economy, others claim that this is an attempt to take over strategic national assets that may eventually harm CIL’s operations, employment and jobs, commodities’ pricing, and Israel’s national security. A (secret?) meeting between CIL’s Chairman and Canada’s Foreign Minister in Davos has been leaked to media recently. You can imagine what has been discussed in the meeting.

Recently, I have argued that the Israeli Government can do a lot to help and facilitate such transactions. For instance, Israel can establish a permanent National Investment Committee that independently and apolitically screens and approves foreign investment in “strategic industries,” similar to other Western economies. A National Investment Committee for foreign investments, I argued, would enhance the transparency and consistency required for the investment process as these values are at the heart of any foreign investor’s business model.

As analysts and investors look carefully at the result of recent Israeli elections , they should not get distracted by endless discussions about Middle East politics and military draft. They may want to hone on the government’s annual returns. The devil is in the details

Looking back at the 2012 elections, both presidential candidates practically ignored Latin America in the third debate, dealing with foreign policy. Most commentators were quite surprised that America’s neighbor and economic partner did not play a greater role to the candidates’ future plans. It can be explained by both the nature of the debate and the declining role of the United States in the region.

First, if one listened to the U.S. presidential debates in the last couple of weeks they might think that there are two worlds; the world of national economic policies and the world of global affairs and foreign policy. These two realities can be perceived as detached from each other only on theory. In reality, they are extremely interconnected and intertwined. The rising role of Latino voters in the United States, for example, is also shaped by the nature of the relations between America and Latin American countries, and the future of immigration policy, including immigration from Latin America. As long as American leadership does not emphasize the impact of foreign policy towards Latin America on local policies, voters and policy makers alike will not absorb the importance of these strategic relations.

The artificial separation of national and international debates in today’s globalized world should be reconsidered and perhaps changed in future election campaigns.

Second, more importantly, this approach reflects a real change in priorities on the ground. A finance minister of a leading Latin American country confirmed to me in a recent conversation that U.S. investors are becoming less interested in the region. It is probably a combination of limited resources and the ‘new normal’ with over-attention to Asia in general, and China in particular. The rest of the world, on the other hand, is not wasting time. Latin America enjoys a commodities boom and a rapid middle-class growth that provides foreign investors with tremendous opportunities.

Of particular visible presence is the Gulf States. The Latin-America-Arab summit was launched 2 years ago and recently took place in Peru. The focus of this summit is strengthening diplomatic ties between the Arab word and Latin America and facilitating further trade and investments between the two regions. The U.S. created a vacuum in Latin America, and the Arab World is quick to fill in.

One area where Gulf States and Latin America will and should collaborate is long-term investment in Latin American infrastructure. Lagging infrastructure is one of the continent’s biggest challenges. According to recent reports by the U.N., the region requires additional investment of $170 billion per year to 2020 to achieve adequate levels. The upcoming World Cup event and the Olympic Games in Brazil exemplify the challenge of bridging the gap of infrastructure in a short time frame. Short horizon, political and policy uncertainty, unstable rules, and price fluctuation – these are just some of the factors that widen this infrastructure gap. At the same time, many Arab nations have created successful sovereign funds that are now focused on infrastructure investments globally. Recent losses in liquid assets encouraged many governments and funds to invest in ‘real assets’, such as infrastructure projects in rapidly developing economies.

Thus, sovereign funds’ status as long-term investors along with a diversification model can present obvious synergies with Latin American’s craving for better infrastructure. The initial reports that came from the last Latin-Arab summit in Peru were extremely positive, talking about a significant upgrade in trade and investment relations.

Is this trend reversible? The use of the U.S. dollar for trade and investment, the close ties between Latin America and U.S.’ capital markets and the strategic importance of Latin America’s port and logistical centers for U.S. firms may overshadow any serious attempts to dramatically change the geo-strategic forces in the region. Nevertheless, recent statistics seem to suggest the trend is here to stay. After all, some time diplomatic summits do reflect the reality we live in.

While the conclusions are mixed there is a growing consensus that by the end of the decade the U.S. will not be the world’s super economic power anymore but continue to serve as the center of the world’s financial systems, and as a moral and cultural cornerstone of mankind.

Martin wolf, a leading British economic and political commentator, tends to agree and in a recent speech on the future of the U.S. from European perspective he justifiably pointed out that the U.S. grows enough to support its moral and military spending but too slow to keep its economic dominance. Yet, any failure to fight its inequality, he advocates, will lead to the collapse of its moral standing in the world.

In light of this emerging consensus, it is clear that the centrality of U.S. financial systems is crucial for its ongoing geostrategic status. Yet, unless the U.S. government continues to protect and promote this centrality, things can change dramatically. Is it happening?

First, a very important component of the U.S. ability to maintain its status as the world’s center of financial systems is its ability to sustain financial markets. Many factors have made it challenging for international companies to enter U.S. capital markets. Costly regulation and large, highly centralized investment banks, among other factors, have contributed to this shrinking market. Moreover, a very important part of the Jobs Act, a recent U.S. legislation designed to deal with jobs creation in the small-to-mid markets and access to liquidity, is crowdfunding that should help these companies to access capital markets despite their low valuations. This legislation is still in its initial stage of implementation and some preliminary feedbacks from the markets are not positive.

Then, with respect to banks and financial systems, as we all know in recent years U.S.-based banks lost significant part of their equity. Only 3 out of top 10 global banks are American, determined by their assets. Several Chinese banks will join this list in the coming years. While many U.S. banks have tried penetrating growth markets, most of them have had a bad experience and decided to focus on local markets instead.

Finally, there is a strong correlation between the use of local currency and development of financial centers. Thus, the continuing primary use of the U.S. Dollar as a global currency is important for the future of the U.S. financial center. As I discussed here several times, strong policies are needed to maintain this status.

While most commentators these days focus on America’s future industries, fight against fiscal deficits, and its market vis-à-vis the rest of the world, a little attention has been paid to the efforts needed to keep U.S. financial systems central to the rest of the world. Orchestrated and integrated solutions can change it. A centralized program to keep U.S. financial centers relevant, open and successful, similar to ‘SelecteUSA’ in the foreign direct investment context, is crucial. While transparency, enforcement, and consumer protection are necessary to keep the vitality of financial institutions for the long-term, an effective implementation of various reforms is necessary.

Supporting economic stabilization, fostering employment and social protection, strengthening the international financial architecture, and reforming the financial sector are some of the messages from G20 leaders that came out of the meeting in Mexico. Yet, many aspects of the declaration lack a concrete timeline and benchmarks. Is this the nature of the institutions or should policy makers be accountable, ‘corporate style’, and deliver results we can measure and evaluate?

In a world where most people tend to be cynical about the ability of global forums to achieve consensus around global strategic affairs and deliver significant results, the importance of measuring results of the policy making process is a critical component of the credibility and prominence of the institution. And this can be achieved.

One example is the G20 forum’s efforts on investment measures. At various summits, G20 leaders committed to foregoing protectionism and asked the leading international economic institutions, the WTO, OECD, and UNCTAD, to monitor their adherence to this commitment. The most recent report just came out and the results can teach us a lot about soft power and global investment trends.

It is interesting to see that, according to the report, most investment measures by G20 countries (mainly emerging markets) had the effect of opening markets and increasing policy transparency for investors. Indeed, while most financial news covers currency and trade wars and investment disputes between investors and states, the empirical data shows that despite the uncertain economic times and the sovereign debt crisis, G20 member countries in the last couple of months have followed their commitments in prior G20 summits to keep market-based policies. It is important to note that despite the global economic shockwaves, the foreign direct investment inflows rose by 17% in 2011 to US$1.5 trillion, even higher than the average pre-crisis levels.

The G20 monitoring system can also provide us with some meaningful information about exceptions to the trends as well. In the last couple of months, according to recent reports, investors experienced significant challenges in several G20 member countries. India required that investments in existing pharmaceutical companies be authorized by the government, while in the past it was part of the “automatic route”. Argentina introduced several investment measures, including new regulations on foreign exchange assets of residents and a limitation of foreigners’ rights to invest in farmland, among others. Indonesia, one of the potential ‘new BRICs’ announced that foreign-owned mining companies operating in coal, minerals and metals should progressively sell their holdings to Indonesians to reach the maximum authorized ceiling of 49% by the 10th year of operation.

These examples clearly demonstrate that despite the strong trends identified by the G20 group, there are areas of concern that the group should continue and monitor moving forward to make sure that consensual decisions are enforced. Moreover, this analysis is extremely valuable to investors around the globe who make critical investment location decisions, too many times under unclear economic policies and political risk conditions.Monitoring investment and investment-related measures is just one example where the G20 forum can provide the investment community with clear and detailed ways to measure the execution and effectiveness of the policies and declarations adopted by this forum. This should not be the only area. G20 leaders should continue to find ways to show their credibility and the relevance of their institution.

Inconsistent and fragmented U.S. government decisions have made it difficult for foreign investors in the U.S. to make critical investment decisions. The primary focus on trade policies, the sensitivity of foreign investment discussions in the political context, and the lack of leadership have been part of the reason for said priorities. Yet, recent developments indicate a potential change may take place.

The U.S government announced last week that a 3-year review process of U.S. bilateral investment treaty (BIT) model has ended. An investment treaty is a bilateral, regional, or a multilateral instrument aim at promoting and protecting foreign direct investment, and helping U.S. corporations to compete abroad. The U.S. government has been using a 2004 model, which has become less relevant in light of recent macroeconomic developments, such as the rise of state-owned entities and sovereign funds activity in the U.S., and the political pressure to include labor and environmental standards that would be applied to foreign corporations operating in the U.S.

An important element, which made a new draft agreement difficult to achieve, is the policy towards incoming investments from China. Since the issues of investment policies and the alleged currency manipulation are linked to each other, the lack of clarity with regards to Chinese foreign exchange policy has an impact on foreign investment policies in general.

The new draft model, which clarifies some of the issues, will trigger a new wave of negotiations and agreements that eventually would protect U.S. investment in unstable economies and will provide foreign investors in the U.S. with better investment environment.

A summary of the draft model and its main developments are not within the scope of this piece, but several takeaway points should be considered. Three leading themes seem to shape the new approach. First, U.S. corporations would like a better level playing field in foreign markets when these compete against local champions. Thus, the new model specifically refers to “State Enterprises” and their obligations in international economic relations. Second, there are continuous efforts to improve the effective mechanism for enforcing the international obligations of the U.S. economic partners. The new model includes a more transparent and inclusive process that engages the public. Finally, it includes stronger labor and environmental protections that reflect the administration’s strategy to link economic performance to democratic and ‘rule of law’ values, whiling keeping the ability to regulate for public interests.

The consequences could be dramatic. Business people and politicians alike should follow and take note. First, the draft model that just got published can revive the negotiations on preexisting drafts, such as U.S.-China bilateral investment treaty. This treaty is a unique opportunity for policy makers on both sides to provide clarity on several key issues of concern, such as investment by state-own entities, Chinese sovereign funds, national treatment applying to U.S. and Chinese companies, and many others. U.S. politicians, business groups, and the Office of the Trade Representative already hinted that the Strategic and Economic Dialogue meeting in Beijing on May 3 and 4 could be a potential forum for re-launching of such an engagement.

Second, the new U.S. policy can trigger new negotiations on economic agreements with governments, with which the U.S. administration wants to further develop economic and diplomatic relations. It was only last week when the Secretary of State, Hillary Clinton, announced in Brazil the need to conclude a bilateral investment treaty and a double taxation treaty, which is a reflection of the $75 billion of trade between the nations and $15.5 billion Brazilian investment in the U.S. last year. Clearly, the challenges arise of these economic ties can be substantial. Secretary Clinton herself understands well that promoting foreign investment policy is necessary in order to capitalize on the true potential of the bilateral relations. In her words: “The opportunity and potential for greater investment, trade, growth and jobs is only now being tapped.”

Moreover, American CEOs watch carefully the recurring trend of resource nationalism. The most recent example was the nationalization of Repsol’s ownership in YPF in order to turn it to a state-owned energy company to better manage scarce energy resources. Due to the decline of the diplomatic protection tool in global affairs, governments are much more limited in their ability to support and protect investors in their operations abroad. While governments do express their concern about anti-foreign sentiments regarding economic interests in foreign countries, the focus has shifted to alternative solutions, such as international arbitration. Thus, foreign investment policies and bilateral investment treaties can and should be part of the Western economic agenda to protect investments against a new wave of resource nationalism.

The jury is still out whether these new developments are a real sign that the U.S. government is taking investment policies seriously. Recent public announcements and draft agreements are meaningless if the U.S. government will not push forward and negotiate tailored economic arrangements with its economic partners. It is also important to understand that most economic partners defer substantially on many of these policies, including national support to state enterprises and greater flexibility when it comes to labor and environmental obligations. Final agreements can be far more neutral than most American business people would like to see. But, no doubt, the U.S. administration would like to move forward. One step at a time, even if it’s a slow moving progress in the right direction- it’s worth staying tuned.

These announcements immediately caused a political and media debate. Local politicians wonder whether the revenues should then be invested abroad in order to reduce government’s debt, locally to promote defense and education, or a mix of the two.

It is easy to oversimplify the debate. Most economists are afraid of the “Dutch Disease”, a rising inflation due to a commodity boom and a stronger currency. On the other hand, many politicians would like to see commodities revenues invested locally for a better equality and distribution of national resources. But, is it really the full picture?

A new sovereign fund can present a unique opportunity for nations to better integrate their capital market into global markets.

First, allowing a sovereign fund to invest abroad provides the government with the opportunity to tie strategic relations to economic relations. The recent deal between China’s enormous sovereign fund and Vietnam to build an energy plant in Vietnam should be understood as part of rising political relations between the two nations. Countries can and should invest in friendly states and, more importantly, use investment wisely to create new friends.

Second, investing in bond and equity markets abroad will improve local financial know-how and create jobs in this area. Financial investment abroad is still a relatively small piece of the financial markets in the respective economies and can be improved as part of their financial integration. Several leading Arab nations used to employ foreign talents to lead their sovereign funds, who, eventually trained a new local generation of financial experts who represent their government abroad.

Third, several studies show a linkage between the establishment of a fund and improving governance practices and fighting corruption. The reason for that is the fact that building a fund that invests in corporate and governmental equity and debt increases the government’s exposure and transparency.

Fourth, the government’s ability to directly invest abroad can introduce new business models in large projects. Thus, for example, investing in an engineering company abroad in return for advisory services and transfer of know-how will help to advance several infrastructure projects. Recent German participation in the Gulf is a case in point.

Finally, better returns on investment abroad will increase the ability to support local needs, such as defense and education, for the long-run. This is an economic marathon, not a race.

No doubt, tax revenues can be used for many immediate needs. Yet, it is precisely the reason why policy makers and business people should fight the populist view and promote many of these new opportunities. The risk of negligent investments abroad can be mitigated by a closer review process and periodical reports to the government or the parliament. Investing in the local economy can be achieved by creating a mechanism of withdrawals in times of a need.

It is exactly in times of global economic crises that states need to invest in their resources and prepare themselves for deeper integration into the global economy. Leaving a new sovereign fund solely to local investments will be a lost opportunity for years to come on many levels. It is about time to open the debate.

How should we explain the recent hyper-activity in this area? And what are the ramifications?

First, it is important to understand the story in light of the trade-investment nexus. The foreign investment boom of the 80’s and 90’s replaced global trade as ‘the’ economic engine, with global trade being au-courant post- World War II. While the world saw a quadrupling of trade in goods between 1980 and 2008, before the global financial crisis, global investment has risen more dramatically. Global stock of outward investment, for example, grew from $550 billion in 1980 to almost $19 trillion at the end of 2009.

The years since the global financial crisis of 2008 have reversed this trend. Credit crunch, a slowdown in mergers and acquisitions activity, lack of faith in the future of globalization, and regulatory reforms – all made it ever more challenging for multinational corporations to do business abroad through foreign investment and their subsidiaries. Hence, trade is becoming a crucial element of the ‘new globalization’ and its policies even more so. Moreover, since emerging markets are the real forces behind the current recovery post-financial crisis and the developed world has traditionally led cross-border investments, it is clear why emerging markets’ exports and trade policies towards them are critical.

Second, trade legislation and disputes are clearly a reflection of foreign relations and protectionist sentiment. Lack of trust and economic competition make even right wing governments think that certain market-based trade policies should be reconsidered. Recent disputes in India can exemplify that.

Third, this is a big year for those who follow the link between politics and economics. France, United States, and several other developed markets are going to the polls. We tend to think about general elections as an internal event with external consequences. In other words, the nation decides on its political and economic future but it is the international community and global markets that pay part of the price.

Yet, watching the current elections’ campaigns carefully it seems like the trend is reversed. These elections become an external affair with internal consequences, at least when it comes to trade, foreign investment and growth.

Foreign investment traditionally attracts very little attention in elections season. Speaking about the need to bring foreign investors is usually perceived as a threat to local industries and a trigger for unemployment. Additionally, investors would shy away from markets that may experience a political change with a potential impact on foreign investors. French candidate, Francois Hollande, for example, is talking about taxing high the super rich (75%) and increasing local subsidies. Some investors interpret his policies as anti-foreign investment. This kind of talk is risky. Trade, however, allows politicians to communicate to their voters without risking their standing vis-à-vis the global investment community and their supporters. Obama’s active participation in the fight against China in the WTO is a case in point.

Finally, this dramatic shift that I describe is a reflection of the broader agenda of the WTO. A decade ago, when world leaders met in Cancun to negotiate trade agreements as part of the Doha Round, also known as the development round, any attempt to include non-core topics with trade impact, such as investment or trade facilitation, failed. These topics, the “Singapore Issues”, have been perceived as a barrier to trade negotiations. Recently, however, politicians and trade negotiators refer to the WTO as a weapon of last resort for dealing with strategic macroeconomic disputes, such as the old-new currency wars. While formal international institutions were part of the problem just a few years ago, now the world is looking at them as the solution.

While investors will have to watch trade policies and disputes more carefully, it will also require them to develop the know-how to understand the essence of the policies and their impact on markets. The next decade will look differently.

There is evidence supporting both positions. Last year’s events indeed empowered the Arab citizen and provided her with new universal human rights. At the same time, new governments try to implement new democratic practices within a long tradition of religious, centralized regimes.

Both perspectives cannot ignore the economic climate that had triggered the Arab Spring movement in its current form and timing, and the prospects for economic success and growth in the post-uprisings Middle East.

Reflecting on the last two decades, it seems that since the global recession of the 80s and the decline in oil prices, it was external parties and powers that managed to deal with economic failures in the Arab society and structural problems such as structured and hidden unemployment. The First Gulf War, writing off Egyptian debts to Europe and the U.S., Syria’s control of Lebanon and its economy, the Oil-for-Food program and the increase in Iraq’s trade with its partners Egypt, Syria and Lebanon, and American guarantees to the region as part of its Second Iraq War efforts –all supported Middle East economies in times of crisis.

Yet, this ad-hoc strategy has started to fail in recent years. Higher energy and food prices, low employment and wages, and the closure of Europe and the Gulf to skilled workers from the Middle East gave the youth no choice. The streets are burning.

Although it is too early to judge the long-term economic consequences of last year’s riots, the immediate results are not favorable. Inward investment fell sharply. Egypt, which was a major recipient of FDI among emerging markets (US$ 9.4 Billion in 2008) during the second half of the past decade, has suffered dramatically as a result of the global financial crisis and last year’s revolution. Tourism, one of the region’s leading industries, continues to decline. In Tunisia, an Arab Spring’s pioneer, for example, tourism fell 50% since last year. The rise of Islamism in many of these countries questions the future of open tourism in the region. The political uncertainty and the practical results of many of the recent elections do not create the necessary stability, which many of global investors and travelers are looking for. Finally, and most importantly, energy and food prices continue to rise, which encourages the Street to continue to strike. This is a vicious cycle.

The new regimes in the Middle East, driven by old and new strong Islamist political parties, face an unprecedented challenge. They need to bring years of economic regression to an end. Political stability will be crucial in order to execute the necessary reforms in order to reduce inflation, increase work force participation, reduce governments’ spending, and revive the private sector in the region.

Egypt, for example, still confronts a tension between the new political elite and the military. Any attempt of the Muslim Brotherhood that won 47% of the parliamentary seats to impose new rules on the powerful Egyptian military can trigger a political coup. At the same time, any attempt of the military to get involved in political decisions would encourage the government to constitutionally limit the military’s authority and powers. The importance of this fine balance is not only for political purposes, but also for the ability of the current regime to focus on its economic targets and gain the political backing to implement bold structural and economic reforms.

The story of the Arab Spring is still unfolding. Syria is still burning, and from time to time local events question the ability of several Gulf States to find the right balance between the various minorities among them. Those who try to predict the centers of political or economic instability of 2012 globally should not dismiss the region. The real story is ahead of us.

I had the pleasure of attending several global conferences recently where people were quite fascinated by the role of the Chinese economy in global markets in light of current economic challenges. “China does not like the world, it needs it”; “Money is Money”; “We do not understand China”; “China is a sleeping giant” – are just some of the statements made by speakers, leaders, and thinkers.

To top it all off, recall the recent comment by many commentators on the importance of Chinese investments in the U.K. economy and its sensitivity: “I don’t care if it’s a white cat or a black cat. It’s a good cat so long as it catches mice”, famously said Deng Xiaoping.

Does it really not make a difference if the investor is a state-owned Chinese entity or, say, a listed Scandinavian multinational corporation?

These statements are a mix of cliché and misinformation. They represent the tension between the strong Western need to generate foreign investment from China to sustain local economies, especially given the ongoing European debt crisis, and the constant fear from the nature, intent, and consequences of Chinese investments. But, more importantly, they tell us quite a bit about the nature of interaction of Western countries and other emerging markets with the Chinese leadership and its economy.

One would think that this should not be alarming. After all, the numbers speak for themselves. In 2010 alone China invested 0.9 Billion Euro in the European Union. Yet, these are modest numbers in global terms and due to the current global economic climate, these numbers can shrink dramatically unless both sides make their efforts to sustain high levels of cross-border investments. What can be done to demolish this Chinese wall?

First, opening offices on the grounds in China can help foreign executives to get closer to customers, suppliers, and business partners, and develop a better understanding of the Chinese business culture. While most international companies did open Chinese branches in recent years there are still many companies that hesitate to open new offices in China exactly because they are afraid of the unknown.

Second, the United States should avoid economic exceptionalism vis-à-vis Chinese investments in the U.S. economy. Many Chinese investors claim that the U.S. administration’s argument that it treats Chinese companies equally is, in fact, untrue. In fact, according to a recent 2011 report by CFIUS, the U.S. agency responsible for screening cross-border foreign investment, investments from Canada, France, and Israel are screened more often. During the period from 2008 through 2010, the United Kingdom alone accounted for 29 percent of all CFIUS filings. Moreover, the approval rate of said Chinese investments tends to be very high. It is important to remember, in any case, that while the approval rate of the investments remains high, an additional screening process can be quite costly, timely, and uncertain. Huawei’s attempt to penetrate the U.S. market in 2007 is a good example.

Moreover, Western governments should find more ways to engage Chinese companies and investors in their policy debate. It is unfortunate that I see more and more forums speaking about Chinese currency, trade, and investment policies without including Chinese speakers or integrating Chinese know-how. If these forums do not exist – we have to create them.

The current political-economic debate in both Europe and the U.S. on the future of Western economies show how fragile our society is. Leaders who are calling the Chinese government and its corporations to increase their investments in their domestic economies in order to improve employment and infrastructure should not ignore the political nature of this public discussion. For most people, it does matter who is catching the mice.