South China Morning Post | 4 August 2014
China’s surging investment in US heralds new multinational era
Sino-US multinationals may emerge as Chinese investors now putting more money into America
Toh Han Shih
Giant Sino-US firms could one day dominate manufacturing.
Chinese investments in the United States now exceed American investments in China in an historic shift that may see the emergence of joint Sino-US multinationals, but one that is also fraught with geopolitical risks, said analysts.
"Chinese FDI [foreign direct investment] into the US will be one of the great economic stories of the next decade," said Mike Margolis, a partner at US law firm Blank Rome.
As China continues to increase its investment in the US there might emerge a new generation of global companies jointly owned by Chinese and American investors that will dominate sectors such as energy, manufacturing and services, said Mao Tong, a partner at US law firm Squire Sanders.
However, this trend will take some time to materialise and is dependent on investment and trade restrictions being lifted, he added.
For decades since the mainland’s economic liberalisation in the 1980s, investment between the two countries was dominated by American investment in China for its cheap costs and fast growing market. That trend has reversed, according to data compiled by the Rhodium Group, a US consultancy.
Chinese investment in the US soared from an annual average of less than US$1 billion before 2008 to over US$14 billion last year, a report from Rhodium said.
Total Chinese FDI in the US jumped from US$1.9 billion in 2007 to US$17.1 billion in 2012, according to Chinese Ministry of Commerce figures, while official US data estimated that Chinese FDI in the US leapt from US$585 million in 2007 to US$5.2 billion in 2012.
If the US and China successfully conclude negotiations over their Bilateral Investment Treaty, total Chinese investment in the US could exceed US$100 billion by 2020, which would exceed the current level of total US investment in China, according to He Weiwen, co-director of the China-US/EU Study Centre at the China Association of International Trade.
"On the US side, China has begun to be perceived as not only a top exporter but an important investor with cash and job creation potential," said Mao.
Local governments in the United States are also more actively enticing investment from China, added Mao.
Later this year several US state delegations will visit China to court more investments in their states.
"There is only one economic game-changer on the horizon for Los Angeles: Chinese investment. Political and business leaders in Los Angeles recognise this and are bending over backwards to make Los Angeles more attractive to Chinese investors," said Margolis, who lives in Los Angeles.
The municipal government of Los Angeles recently approved a US$39 million tax credit for Greenland Group, a Chinese property developer, to support its investment in a downtown real estate project.
"This is being replicated all over the US, as other areas compete for Chinese capital," Margolis said.
"Chinese companies operating in the US naturally want the US to thrive, and the more Chinese investment there is in the US, the more intertwining [there is] of economic interests."
However, fast-rising Chinese investment in the US may incur political risks, Rosen said.
"In 20 years, I’ve never been as concerned as now over the mistrust on both sides of the Pacific," he said.
Margolis added: "We can hear today the same fears that were voiced 25 years ago about Japanese investment; fears that China is taking over the US economically. These tie into the increasing tension between China and the US in foreign affairs."