China’s foreign direct investment (FDI) in the US totaled $14 billion last year, and a group of experts believes the trend is here to stay.
“To our knowledge, Chinese companies have invested in at least 45 of the 50 US states, and they’re very much following the path of other foreign investors,” Thilo Hanemann, research director with the Rhodium Group (RHG), a global New York-based research and advisory group, said during a panel discussion on Tuesday in New York.
“Very little was happening before 2007 or 2008, but ever since 2009 we’ve seen a very strong increase in the number of transactions and the total values [coming from China],” Hanemann said. “You also see certain industry clusters getting investment from China: in Texas we see a lot of money going into energy, Michigan, Ohio and Illinois have seen investments in auto and auto parts, etc. So it’s similar to the overall inbound flow of FDI to the US.”
Alan Chu, a partner at Pricewaterhouse Coopers (PwC), a multinational professional services firm, said Chinese companies bringing FDI to the US are doing so as part of a “crystallization strategy”.
“Market access is definitely still the objective for some of the inbound Chinese investors, but they are also looking for portfolio diversification so that they can set themselves up to invest in a safe, stable economic environment,” Chu said at the panel discussion. “The companies that are bringing foreign investment well are finding ways for their endeavors in the US to link up with their global business.”
Chu and Hanemann joined Rick Niu, president of Starr Strategic Partners LLC, a global insurance and financial services organization, to discuss trends facing Chinese FDI in the US and elsewhere.
Nearly 100 people attended the discussion on at the Cornell Club of New York in Midtown Manhattan, which kicked off the 4th Annual Emerging Market Conference. Other topics of discussion included the state of natural resources, technological advances and the emergence of new multinational corporations in the world’s second-largest economy.
The Emerging Markets Institute at Cornell’s Samuel Curtis Johnson Graduate School of Management hosted the event.
Niu, with Starr, said the world’s two largest economies want to have a lot of bilateral investment because the US remains “an ideal destination for FDI from China”.
“On the Chinese side there is a lot of demand to go global, on the US side there’s a good supply of a system that welcomes investments,” Niu said during the panel discussion. “As domestic GDP (gross domestic product) in China goes down, money has to go elsewhere to find a better return, and if you flip the coin you’ll see why America is ideal [for China].”
Hanemann, who leads RHG’s cross-border investment work, said during the panel discussion: “Some people in Washington and elsewhere think that Chinese companies are investing strategically in only one or two sectors, and our data shows that’s clearly not the case. Bottom line we see a very rapid increase to an elevated level of Chinese investment in the past couple years, and there’s really no end in sight at this point.”
Foreign direct investment in the Chinese mainland dropped 14 percent in August from a year earlier, settling at $7.2 billion, the Ministry of Commerce said on Sept 16.
The data, following a 17 percent slump in July, marked the lowest volume in nearly five years.
China’s FDI in the US through the first half of 2014 was slightly lower than the same six-month period last year, and the focus is shifting from acquisitions of assets to real estate, advanced services and manufacturing, according to a July report released by RHG.
The report also noted a recent increase in the average amount of money spent on these deals by Chinese investors, and an increased tendency for Chinese spending on greenfield investments, or previously undeveloped project sites.
Though FDI for the first six months was lower year-on-year, there is a “very strong pipeline for the second half,” the authors wrote.
By JACK FREIFELDER October 15, 2014 in China Daily