Security a factor in FDI from China
Updated: 2013-02-26 11:47
By Chen Weihua in Washington (China Daily)
Concerns over national security have differentiated Europe from the United States in terms of direct investment from China, although both continue to see increases.
According to a new report from Rhodium Group, which tracks such activity, Chinese direct investment has been rising quickly in the US and the European Union, but the latter has attracted twice as much over the past two years.
Foreign direct investment, or FDI, from China to the US soared to $6.5 billion last year from less than $1 billion in 2008. But in Europe, Chinese FDI has hit $10 billion in each of the past two years, compared with less than $1 billion annually before 2008.
In the fields of advanced industries and infrastructure facilities, Europeans have extended a warmer welcome to Chinese than Americans, according to Rhodium's research. This is especially true when Chinese investors seek to acquire advanced manufacturing assets that allow them to modernize domestic industries and move up the value chain. Also, debt crises in some of the 17 states that use the euro currency have presented opportunities for Chinese investors.
According to Rhodium, investors from China spent $6 billion on the industrial-machinery and automotive industries in Europe, compared with less than $3 billion in the equivalent US sectors.
EU countries also attracted more investment in utilities and transportation infrastructure. Through 2012, Chinese State-owned enterprises and sovereign investment bodies put more than $5 billion in those industries, including a stake by China's sovereign-wealth fund in Heathrow Airport in London.
On the other hand, the US attracted almost no investment in transportation infrastructure and the $3 billion of Chinese investment in utilities targeted companies with assets mostly outside of the US.
Differences in European and US scrutiny over national security are already affecting inbound investment in several industries, the report said.
US skepticism about Chinese FDI is due to the fact that investment ties between the countries are seen in the broad context of geopolitical relations, said Karl Sauvant, resident senior fellow at Columbia University's Vale Columbia Center on Sustainable International Investment.
"The strategic competition between the two countries has influenced the view with which Chinese investment is being seen here," said Sauvant, a German national who has lived and taught in the US for decades.
Strategic competition with China isn't an issue in Europe, he said.
A report by two members of the US House of Representatives Intelligence Committee last October cited two Chinese makers of telecommunications gear, Huawei Technologies Co and ZTE Corp, as posing a potential national-security threat to the US. (Both companies also operate in Europe.) That followed President Barack Obama's executive order in September for Chinese-controlled Ralls Corp to divest its wind farm investment near a US Navy weapons-testing facility in Oregon.
Ann Lee, an adjunct professor at New York University and author of What the US Can Learn from China, said Europeans are less concerned because their elites, unlike those in the US, aren't trying to defend their position as the world's lone superpower.
"The US must always have an enemy to maintain their high moral ground among its citizens," she said.
The Rhodium report, however, finds that the US has outpaced Europe in attracting Chinese investment to several high-tech clusters, including aviation and information-technology services. Investment levels in those industries were low, however. Rhodium predicts that Chinese interest in the two sectors will increase as firms become more capable of managing and integrating high-tech assets.
A recent example is Wanxiang Group Co's $257 million purchase of most of the assets of A123 Systems Inc, a bankrupt electric-car battery maker in Massachusetts. However, to satisfy national-security concerns from Congress and secure the approval of the Committee on Foreign Investment in the United States, the Chinese company had to exclude A123's US government business from its acquisition.
The report by New York-based Rhodium also found greater Chinese interest in advanced-services sector in the US. Last year brought the $2.6 billion purchase of movie-theater chain AMC Entertainment Holdings by China's Dalian Wanda Group and the $4.2 billion Chinese takeover of International Lease Finance Corp from insurer American International Group.
"The question is whether the United States can get as much Chinese investment as it could, and help stimulate its economic growth," he said. "For that reason, the individual states in the United States are making particular efforts to attract investment from China," said Sauvant.