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Chinese Investment in the United States: All Signs Point to Growth
The United States and China have an almost symbiotic economic relationship. Our economic interests are bound up in each other, and ongoing trends suggest that opportunities for investors from both nations remain very promising. Here’s a review of my observations of foreign direct investment (FDI) and how it is affecting our countries’ mutual interests.
Investment strengthens international relations and creates jobs
Increased FDI has already led1 to greater economic growth, more jobs, and expanded opportunities in both China and the United States. It has strengthened the relationship between the world’s two largest economies and has led to greater global stability and prosperity.
Former U.S. Ambassador to China Gary Locke noted that, as far back as 2012, more than $1 billion in goods and services flowed between our two countries every single day, and over 80,000 American jobs depended on the production of goods and services for the Chinese market.
It’s evident that our interests are fully aligned. Chinese companies should be investing more abroad given the size of China’s economy. The U.S. needs and welcomes foreign investment and would benefit from a larger share of China’s outward investment.
According to the Rhodium Group, Chinese investment in 2014 totaled $12 billion, topping the $10 billion mark for the second year in a row. Chinese investment in the American market is growing at a rapid rate of up to 200 percent a year.
In the APCO and China Daily2 survey of Chinese company executives in the U.S., nearly 94 percent described their company’s market-entry experience as successful. Encouragingly, business leaders in Chinese enterprises demonstrate a great optimism about the future, which could lead to larger jobs numbers. The Rhodium Group says the recent surge in Chinese investments is yielding employment benefits. If investment remains on track, Chinese firms could employ 200,000 to 400,000 Americans by 2020.3
Several industries continue to attract Chinese investment
Chinese investors are particularly interested in ventures in real estate, information and telecommunications technology, manufacturing, natural resources, and financial services and insurance.
Private investment is increasing considerably
State-owned enterprises (SOEs) accounted for approximately 70 percent of China’s global FDI stock in 2009. Over the past few years, we’ve seen more and more private investors in the U.S. They now dominate investment flows and account for more than 80 percent of deals and total investment value in first half of 2015, compared to less than 20 percent of annual investment only five years ago.4
Outbound Chinese FDI protocols are being relaxed
According to the Rhodium Group, in fourth quarter of 2014 China’s bureaucracy continued to push forward on the liberalization of outward FDI approvals. Several reforms were of particular significance:
- Removal of approval requirements for non-sensitive outbound FDI
- Removal of approval requirements for projects of $1 billion or more
- Stronger financial support for outbound investment, including lifting foreign exchange pre-registration requirements
- Elimination of application requirements for approval of foreign exchange transactions related to outbound FDI, which can now be conducted at local banks
It will take time to fully implement these reforms, so the benefit to outbound investors is not immediate.
Clearing misperceptions and providing local knowledge will lead to growth
- One of the largest barriers to increased Chinese investment in the U.S. has been a mutual lack of understanding. The Chinese have not fully comprehended the opportunities available in the U.S., and have overestimated the obstructions they face.
- Correspondingly U.S. must better explain potential opportunities and document a roadmap for success.
Chinese companies often find themselves disadvantaged when investing in the U.S. As reported in Fortune: “Contrary to conventional wisdom, the greatest obstacle to outbound Chinese FDI is not protectionism or discrimination, but the dearth of local knowledge, management skills, and sophistication among Chinese investors. According to the former chairman of the supervisory board of China Investment Corp., China’s sovereign wealth fund, 70 percent of China’s investment overseas is ‘unsuccessful.’ Such an abysmal record can mean only one thing — Chinese investors need professional help, and American companies are in a good position to supply it.”5
The outlook is promising
China’s investments in the United States are small given the size of the economy; of the $236 billion in FDI in the U.S.in 2013 alone, only 6 percent flowed from China.6
With China holding $4 trillion USD worth of foreign reserve stockpile and the advantages in valuations and returns on U.S. assets, it is looking to recycle some of that back in to the U.S. economy, also serving as a significant hedge against risk. We anticipate the number of transactions with privately held Chinese companies to increase at a steady rate, with key opportunities for SMEs to create partnerships or explore succession, and to become part of the supply chain for large Chinese-owned corporations. As transactions become more global in nature, opportunities increase beyond our borders, and CLA can help navigate those waters with you.
Take advantage of market opportunities
If you are looking to develop share in the Chinese market, don’t miss the Sino-U.S. SME Forum in New York on September 28, 2015, with over 85 Chinese businesses from five major sectors, including manufacturing, health care, agriculture, technology, and renewable energy. Hear market analysis and develop business connections to leverage private-public partnership opportunities.
1 Rhodium Group
2 Survey Report: Experiences of Chinese enterprises in the United States, APCO Worldwide and China Daily
4 Rhodium Group