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YOUR MONEY

Chinese Investment in American Examined; China Increasing Tourism to U.S.; Hollowed out America Textile Industry Debated; Low Income Students Not Applying to Select Colleges

Aired June 1, 2013 - 14:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


CHRISTINE ROMANS, CNN ANCHOR: China is on a buying binge, and it wants one of the last things still made in America, our food.

I'm Christine Romans. This is YOUR MONEY.

Call it China Inc., Chinese companies working with the government buying assets around the world. Natural resources, technology, ports, real estate, and now the U.S. food supply. This week a Chinese meat producer agreed to acquire Smithfield Foods, the world's largest processor of pork. That deal, valued at nearly $5 billion, would not biggest purchase ever of a U.S. company lock, stock, and barrel by a Chinese buyer.

And it is just the latest example of China's buying spree in the U.S. Chinese investment in the U.S. is headed for another record year. As of April about $10 billion worth of deals were pending. Last year the record was nearly $6.7 billion.

We already know China is the biggest foreign buyer of U.S. debt, holding more than $1.2 trillion in U.S. treasuries. Now it's government may be targets U.S. properties. "The Wall Street Journal" reports the manager of the currency reserves is setting up offices in New York City to explore, quote, "alternative investments." We're talking about real estate, private equity, U.S. assets.

Whether it worries you or not, China has an economic strategy. America lurches from one manufacturing crisis to the next. America doesn't even have a budget. China has central planning. The United States has central bickering. How can we compete?

Peter Navarro is a professor at U.C. Irvine and author of "Death by China," Ann Lee is an adjunct professor at NYU and author of "What the U.S. Can Learn from China." Welcome to both of you. Peter, let's broaden it to the bigger picture about China, the U.S., and business. You have a government report this week that found that Chinese hackers gained access to U.S. military secrets. What is a bigger threat, China hacking or China buying up U.S. assets?

PETER NAVARRO, PROFESSOR, U.C. IRVINE: Well, both, because when the Chinese buys up our bonds, for example, they are able to use their political power to stop us from, for example, not branding them a currency manipulator, which has basically translated into the loss of 5 million manufacturing jobs and 25 million people unemployed. So that's a big threat. The hacking itself, I don't understand why we as a country would allow China to basically have their way with not just the Pentagon but also our businesses and our homes. If your neighbor came in at night and stole everything from your house every day, you wouldn't be real friends with that neighbor. But China, the latest report --

ROMANS: But if the neighbor owns the mortgage on your house, if the neighbor is the one that gives you the mortgage on the house --

NAVARRO: Christine, the problem is as you point out, look, we're getting deeper and deeper into debt with a country that does not have our best interests at heart. This is not Canada. This is not Great Britain. This is not Europe. This is a country which is growing the biggest military in the world to challenge us. And every day it is hacking our Pentagon and hacking out --

ROMANS: China, by the way, says it doesn't need to hack us and it can do all of this stuff on its own and we're delusion ago to think they would try to get that. I want to bring in Ann. What can we learn from China?

ANN LEE, AUTHOR, "WHAT THE U.S. CAN LEARN FROM CHINA": Thompson Reuters just published an article on May 21 saying that the U.S. is the largest hacker in the world. We buy the most hacking technology than any other nation to spy on other nations. And so we do plenty of the same things that China does.

And this is really about the two elite groups coming together to work out what sort of rules of the game they want to abide by. But it would be very difficult for us to preach and tell them you can't do this if we're the biggest offender. And so we need to have a strategy about how we want to approach this in a smart way.

ROMANS: I think the thing that concerns the people at the Pentagon is that we have the military secrets to be stolen. There are really military secrets we're trying to steal from China. You know what I mean, the playing field, Chinese eager to level the playing field and the U.S. eager to keep its own stuff in house.

LEE: True. I would say that we are more advanced in many of these things, but let's not forget that China also invests a great deal in R&D. And companies like Huawei, for example, spend so much of their budget on R&D now that they file more international patents than many other of their competitors, and this is how they have been able to dominate the telecom industry and beat out Erickson as the number one.

ROMANS: It is so interesting. You talk about the rhetoric that the political, different political cultures of the two countries, it is fascinating to watch. Last word for a paranoid Peter Navarro.

NAVARRO: More like outraged Peter Navarro. Ann lives in a very different world than the real world here on this matter, because the U.S. does not steal intellectual property from other countries. China excels at stealing intellectual property, whether it's weapon system or whether it is Google source code or anything in between. They're the biggest threat right now to this country in terms of our long-term economic future, and a lot of the reason is because companies like Huawei and others steal our stuff. And for us to put up with that, it is outrageous as outrageous is the stuff that comes out of Ann's mouth on this issue.

ROMANS: I will leave it here and say the Chinese government and the Chinese foreign ministries and these companies have all said again and again for years as I have been covering this that they do not do any of this. That's the response from those companies.

NAVARRO: Never.

ROMANS: And the government --

NAVARRO: Never happened.

LEE: So many predictable things coming out of Peter's mouth, too.

ROMANS: Well, let's come back and discuss it again, because I found it rather unpredictable. Thank you so much. Have a great weekend.

The Chinese just aren't buying big U.S. companies, they're also snapping up statue of liberty hats and models of the Empire state Building. How the rise of China is putting cash in the pockets of Americans here at home, next.

(COMMERCIAL BREAK)

ROMANS: So it is not just Chinese companies and the Chinese government on a shopping spree. Did you know that Chinese citizens are spreading their cash around the globe? They took eight times as many trips last year as they did in 2000. The Chinese citizens outspent every other country. Richard Roth is here to explain. Hi there.

RICHARD ROTH, CNN INTERNATIONAL CORRESPONDENT: Hello. That's right, summer weather has arrived in New York City after a chilly spring. And that also means tourist season growing more visible on the street in tour buses. Tourists from China, a country providing an increasing number of visitors to New York and the USA.

(BEGIN VIDEOTAPE)

ROTH: It's hard not to run into Chinese tourists on the sidewalks of New York. Large Chinese tour groups are everywhere and ready to spend. From Lady Liberty in New York Harbor to the top of the Empire State Building, the Chinese tourist is ever present.

UNIDENTIFIED FEMALE (via translator): We actually see New York City all the time in the movie and TV, on TV, and we really wanted to come here.

ROTH: How come you don't have a sign in mandarin saying "Beijing this way"?

(LAUGHTER)

JEAN-YVES GHAZI, EMPIRE STATE BUILDING OBSERVATORY: Because Beijing is here in New York City right now right here with us.

ROTH: First it was Chinese business travelers, and now relaxed visa rules and a strong economy back home brings busloads full of vacationers.

GEORGE FERTITTA, CEO, NYC AND CO.: It is clearly an incredibly growing market. Over the last year we have grown about 22 percent.

UNIDENTIFIED MALE: So now we're driving to the eastern part of Manhattan.

ROTH: And 40 percent of all Chinese visitors to America come to New York City.

UNIDENTIFIED FEMALE: I love New York. We're on the east side, and this is the East River.

UNIDENTIFIED MALE: Every single Chinese people have heard about New York when they heard about America, so we just want to come and see.

ROTH: Would you be interested in buying a piece of the Brooklyn Bridge? I can sell you that. That is a New York tradition.

UNIDENTIFIED MALE: If I can, sure.

ROTH: L&L Tours shows them a good time. Ten years ago tourists brought their own food and didn't want to buy anything.

RICH SUN, V.P. L&L TRAVEL ENTERPRISES: The purchasing power has grown dramatically. Now we have the customers who are here to buy iPad, iPod, different computers, and all of the luxury brands.

LILY FAN, CHINESE TOURIST: I know they spend $10,000 by shopping.

ROTH: Luxury goods stores make sure to have Mandarin speaking employees to watch out for that growing clientele.

LARRY BARKLEY, V.P. OF RETAIL, TOURNEAU: We sent key members of the marketing team to China in order to reach out to the different groups that are organizing tours to come to the United States.

ROTH: One U.N. study said the Chinese spent $102 billion last year in their world travel, surpassing the U.S. and Germany.

Any final thoughts?

GHAZI: Welcome to New York City.

(END VIDEOTAPE)

ROTH: Stores and hotels here cater to the Chinese clientele with special rooms on lucky floors and breakfast thrown in. Shopping is number one for the visitors. New York hasn't had complaints about tourist behavior, but this week in China authorities were furious when a Chinese school boy defaced an ancient Egyptian temple in Nanjing. In April they established a new law that warned tourists against committing uncivilized behavior. Chinese vacationers should be more polite, they were told, and don't spit and don't talk to loud. It sounds like what the neighbors in my apartment building tell me. Always good behavior when you go anywhere as a tourist.

(LAUGHTER)

ROMANS: Absolutely. And so many of the CEOs of the leisure and hospitality companies, they have been studying what kind of rooms, what kind of amenities, so they can cater to that growing middle class there. It's so interesting. Richard Roth, thank you.

Up next, the U.S. economy may be improving, but could today's recovery have a dark side tomorrow? And what's your role in it? Find out next.

(COMMERCIAL BREAK)

ROMANS: Americans with jobs but struggling with stagnant wages. Is out consumer culture to blame? Getting the best price may come at too high a cost not only half a world away, but here at home.

(BEGIN VIDEOTAPE)

ROMANS: Capitalism, meet your conscience. You're up for a bargain, but there's a high cost to chasing cheap. In places like Bangladesh, the clothes we wear made by women paid with some of the lowest wages on the planet working in some of the shoddiest factory buildings in the world.

And here in the U.S. once secure jobs that paid Americans a living wage and offered a hopeful future exported abroad. Today one-third of U.S. workers make less than $24,000 a year. What's left for Americans? Increasingly only low wage work with no benefits and no way to make a living.

But that's not all. Colleges, the most American of institutions historically open to all, now increasingly out of reach for many. Seven million students are bracing for a surge in their student loan rates. Tuition is sky rocketing right when high paying jobs are dwindling. The one vehicle that helped generations of Americans raise them out of poverty and build wealth in our society is now a pipe dream for too many.

Capitalism, this is your conscience speaking. Are you listening?

(END VIDEOTAPE)

ROMANS: Terry Savage is a nationally syndicated financial columnist and author of "The Savage Truth on Money." Elizabeth Cline is the author of "Overdressed, The Shocking High Cost of Cheap Fashion." The feel more wealthy, this middle class on this illusion of grandeur with all of this debt was buying cheap manufactured products from around the rest of the world. So maybe your wages were stagnant but you could still fill your house with stuff. Maybe you had to borrow money to send a kid to college. But you could still finance a new car.

We were building this life, helped with labor from around the world. Wal-Mart has been criticized for not signing onto a global pact to improve worker safety in Bangladesh. Now more than 100 Wal-Mart employees are walking out. They've also raised money to bring two Bangladeshi garment workers to a shareholder meeting next week. The reason why we are talking about this is because Wal-Mart sells the stuff to make the middle class feel better, but it is made with people who are working under conditions I think most middle class families would not abide by.

ELIZABETH CLINE, AUTHOR, "OVERDRESSED": Right. And I wrote a book about the fashion industry, and one thing that was so shocking to me is that if you look back, as recently as 1990 we made half of our clothing in the United States. And now we make between two and three percent in the United States. The garment textile industries were two of the fastest dying industries of the last 10 years. And that job loss has been felt acutely.

And we don't make the connections as consumer when is we walk into Wal-Mart and buy the product from Bangladesh, we're not thinking, oh, I am not supporting a job in my community or in my own country. But really we do need to start making those connections.

ROMANS: You really don't have a choice, right? Sometimes people blame the middle class and say they want cheap and they want to live high on the hog. But you're not given a choice. It is not like you go to a store and in this lane you pay more but you know it is supporting a middle class job wherever here or somewhere else. You can't go here and say this will cost more because it is made and the water isn't being poisoned. Over here you can pay cheap and somebody will die in the rubble of a factory.

CLINE: If you look back 20 or 30 years ago certainly we could choose between a domestically made product --

ROMANS: We chose cheap.

CLINE: Right. But what we're seeing now is a turning point where there isn't an increase in domestically produced clothing. There are more ethically sourced, fair trade fashion brands. So in the next couple of years we are going to see more consumer choice out there in the market. And what's going to be interesting to see is if consumers actually support it. And I think they will. I think we are actually at a turning point in this issue.

ROMANS: Terry, shopping, fast fashion, shopping in places like Wal- Mart, everyday low prices, it helped Americans have more when they're earning less. That's what those companies say. They say we make the middle class better and stronger because the middle class can have these things. Is it as simple as that? Is that the tradeoff we've made?

TERRY SAVAGE, NATIONALLY SYNDICATED FINANCIAL COLUMNIST: Well, no. The interesting thing is that's true. It is true ever since the industrial revolution. We can make products more efficiently and less costly and free up resources of the family either to work less and have more leisure or to have more things. So if you have less expensive clothing, that's a benefit to the American family. What I think Elizabeth is correctly pointing out is that we're in this fashion frenzy, this instant disposable fashion. And I agree that as we understand the drain on our resources and the frenzy of stuff we use, throw away, that goes out of style, that we are actually financing with debt, that that's not a positive thing.

Let me point out, when we take a look what's going on in the factories in Bangladesh, which we all abhor, we are now exactly 102 years here in America from that horrible tragedy of the triangle shirt waist fire that took place in a sweat shop in New York City where American young girls were making clothing at the same kind of low wages that we saw now around the world. That's not to make it say it is right. What I am saying is that maybe as our conscience becomes more aware that we don't have to follow fashion frenzy. We will take advantage of the lower cost of things but buy them more sensibly.

ROMANS: It is not about bailing out of Bangladesh. They can go someplace cheaper so you can rush and go to India and find new sources. It's about fixing the mess you made with big companies. That's the message.

SAVAGE: Exactly.

ROMANS: Nice to see both of you. Coming up, your mom, your aunt Bertha, even the president have told you about the importance of college.

(BEGIN VIDEO CLIP)

BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES: You're going to need more than just a high school education to succeed in this economy.

(END VIDEO CLIP)

ROMANS: If you're from a low income family, how do you pay for it? We'll show you one solution next.

(COMMERCIAL BREAK)

ROMANS: The Supreme Court is expected to make a decision soon in an affirmative action case. They court could outlaw any consideration of race in college omissions. Opponents of affirmative action say colleges should focus on a different kind of diversity, income diversity. And 70 percent of students at elite colleges come from the top income quartile. Those are top earning families with all the spots, 70 percent of the spots at top earning schools. They outnumber low income classmates 14 to one.

So why aren't the low income students getting into the best schools? It turns out they're simply not applying.

(BEGIN VIDEO CLIP)

LORIZBETH GUZMAN, DROPPED OUT OF COLLEGE: I grew up in Washington heights.

ROMANS: Lorizbeth Guzman didn't grow up with much, but she always excelled in school.

GUZMAN: My SAT scores were around the 1400s.

ROMANS: But her small high school in the Bronx had limited resources.

GUZMAN: We only had one school come and visit which was Mercy College. Everybody in my class applied, and almost every got accepted. We're like, all right, we have never heard of this school, but if they're all accepting us, why not?

ROMANS: According to a new study from the Brookings Institution, only 34 percent of top low income students apply to the country's most selective colleges. That's compared with 78 percent of top high income student. The college wasn't the right fit. After the second semester she dropped out.

GUZMAN: I wanted to go back a few months after I left Mercy. But everything happens and I was working full time and I got pregnant.

CAROLINE HOXBY, PROFESSOR, STANFORD UNIVERSITY: Low income, high achieving students thrive at very selective colleges and universities once they get there, whereas if they attend a non-selective postsecondary institution that they tend to apply to, they have about a 50 percent chance of graduating on time.

ROMANS: Meanwhile, she is still paying off her loans. She says she didn't have enough information to make the best choice.

GUZMAN: I heard about scholarships and opportunities you can get and I would research, but there are so many out there. So I never knew which would fit me.

HOXBY: For very high achieving low income students, the more selective the college or university they attend, the less they will pay.

ROMANS: A lot less. The most competitive colleges have more resources and can offer more scholarships, so low income students usually don't come even close to paying that scary sticker price.

FAUSTO JIMENEZ, COLLEGE GRADUATE: I understood that I needed to go to school for free because my parents would not be able to afford it.

ROMANS: Fausto Jimenez grew up in Harlem.

JIMENEZ: There were often shootouts while we were walking down the street. There was actually a drug factory essentially right across the hall from my apartment.

ROMANS: He always dreamed of going to Columbia University.

JIMENEZ: I remember saying I want to be here. I want to come to Columbia. I think my mom chuckled at the time.

ROMANS: Thanks to the Gates Millennium scholars program he was able to get that Ivy League education for free.

JIMENEZ: I don't have loans. All I had to do was concentrate on my studies.

HOXBY: It is important to apply to some of the most selective colleges you can get into if you are a low income, high achieving student. Narrow in on a set of colleges and apply to several. If are you a low income student, you can get application fee waivers, so you should not have to play application fees.

JIMENEZ: Attending Columbia has been a transformative experience in my life. I may still live in Harlem but I know I now understand Harlem a lot better.

(END VIDEOTAPE)

ROMANS: Fausto is giving back to his community. He works for a New York City organization helping kids get into top schools like he did, and Laura Beth is planning to head back to school in the fall to make a better future for her young daughter. This time around she is applying for lots of scholarships.

Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday 2:00 p.m. eastern and Sunday at 3:00. Until then you can find me on Facebook and Twitter. My handle is @ChristineRomans.