China set for long-term increase in US FDI: Expert

Updated: 2014-07-28 20:37

By JACK FREIFELDER in New York (China Daily USA)

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Economic changes in China have set the world's second largest economy up for a "structural increase" of foreign direct investment (FDI) in a broad range of industries in the United States over the next decade, according to a director at a New York-based global research and advisory firm.

"China is only at the beginning of a structural catch-up process in global outbound investment," Thilo Hanemann, research director with the Rhodium Group (RHG), said July 26 in an email to China Daily.

Hanemann, who leads RHG's cross-border investment work, said the US will see "strong inflows in the next decade," but the amount of investment from China will depend on a number of factors including: "the relative attractiveness of the US economy; the ability of Chinese firms to compete in an advanced marketplace like the US; and the progress both countries make in sustaining two-way openness to investment."

"Irrespective of annual trends, China is emerging as an increasingly important investor in the US, and this is a natural process given China's economic size and maturing economy," Hanemann said. "The US is very open to Chinese investment at the moment, but China needs to make faster progress in leveling the playing field."

China's FDI in the US in 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 report released by RHG.

Hanemann and RHG research analyst Cassie Gao co-wrote the July 25 report.

"Investment … continues to boom as investors and developers are looking for risk diversification and new opportunities abroad," Hanemann and Gao wrote. "Higher incomes, local pollution, and streamlined visa policies in the US have contributed to a growing physical presence of Chinese citizens in the US."

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.

Chinese investment in the US doubled to $14 billion in 2013, and investors have made deals worth more than $10 billion in the first half of 2014 alone, according to RHG data.

Investment in the US high-tech sector formed the core of China's FDI through the first quarter of 2014 with the announcement of more than $6 billion in high-tech deals alone.

An April report from RHG on Chinese investment in the US high-tech sector forecast that China's outbound FDI could grow to an amount between $1 trillion and $2 trillion by 2020.

Though $10 billion in deals have been disclosed so far this year, Hanemann said it's important to distinguish that completed investments for the first half of 2014 totaled just north of $3.5 billion.

"Some [deals] may not actually materialize," he said. As a result, it is "unlikely" that Chinese FDI in the US will surpass last year's figure unless there is "another mega deal in the coming weeks."

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, said he agrees with the RHG's position that Chinese investment in the US will increase sizably over the next decade.

"If we look out conservatively over 10 years, investment will double in terms of the size of FDI stock in the US," Hufbauer said on July 25 in an interview with China Daily. "Going the other way, if the liberalization agenda announced by President Xi Jinping during the Third Plenum takes hold, then US investment in China should also sharply increase."

"The rhetoric is very favorable now, and it looks like the stage is set for a bigger US investment in China," Hufbauer said.

Significant deals brought by Chinese investors earlier this year include: Lenovo Group Ltd's acquisitions of IBM's x86 server unit (US$2.3 billion) and Motorola Mobility (US$2.91 billion); Shandong Tranlin Paper Co Ltd's Virginia Plant expansion (US$2 billion); and a Chicago waterfront real estate project proposed by the Dalian Wanda Group Corp that could approach up to US$900 million.