China's FDI in US on track for record

Updated: 2012-07-26 11:21

By Chen Weihua in New York (China Daily)

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China's direct investment in the United States is expected to hit a record high this year, thanks largely to big-ticket items, according to new research by New York-based Rhodium Group.

Total Chinese foreign direct investment, or FDI, in the US reached $3.6 billion in this year's first half, despite a setback in the fourth quarter of 2011. The 33 projects evaluated during the first six months of 2012 -12 acquisitions and 21 greenfield investments (new-facility construction) - have the highest value of any half-year recorded for China.

Thilo Hanemann, research director for Rhodium, which monitors Chinese FDI in the US, said the many large-scale investments could make 2012 the richest year on record, surpassing the $5.7 billion record set in 2010.

Major projects of Chinese FDI during the half include the $2.5 billion purchase by China Petroleum and Chemical Corp, or Sinopec, of a one-third stake in five shale oil and gas fields across the US from Ohio-based Devon Energy; copper-tube producer Golden Dragon's breaking ground on a $100 million manufacturing facility in Wilcox County, Alabama; and the acquisition by Industrial & Commercial Bank of China Ltd of 80 percent of Bank of East Asia's US operations for $140 million.

Two headline-making investments weren't included in Rhodium's first-half report: Dalian Wanda Group's $2.6 billion acquisition of US movie-theater operator AMC Entertainment Holdings Inc and Superior Aviation Beijing Co's $1.8 billion bid for aerospace company Hawker Beechcraft in early July.

While Superior Aviation is still awaiting approval from US authorities (Hawker remains in federal bankruptcy proceedings in New York), Wanda and AMC announced on Wednesday that they received approval from the Committee on Foreign Investment in the US. That, along with clearances from Chinese and other US authorities, mean the deal should close as planned by the end of August, according to Wanda.

If the Superior Aviation deal is also approved, the pair of investments would push Chinese total FDI in the US beyond $8 billion this year. That doesn't include other projects in the pipeline over the remaining months of 2012.

At least 17 US states hosted Chinese investment during the first half, with North Carolina and California hosting the most projects. The biggest acquisitions took place in the gas industry, in Ohio and Massachusetts.

While Chinese investors continue to pour money into a range of industries, the few sectors specified in the Rhodium report include oil and gas, which, led by the Sinopec-Devon deal, accounted for the bulk of Chinese FDI in the US.

Trailing oil and gas were aerospace, banking, metals processing and plastics. Alternative and renewable energy recorded the highest number of deals, although these investments were relatively small.

Besides big-ticket projects, Rhodium Group pointed to recent positive developments in investment policy, both in the US and China. It cited President Obama's order to increase US visa-issuing capacity in China by up to 40 percent in 2012 and official statements welcoming Chinese participation in US infrastructure development during the May US-China Strategic and Economic Dialogue.

While the report said the welcoming tone is a first step, it cautioned that the main challenge businesses will face in pursuing infrastructure projects will be finding the logistical and legal means to participate more directly without sparking national security concerns.

So far, Chinese investments in telecommunications and information technology, including by electronics companies such as Huawei Technologies Co and ZTE Corp, are most likely to be blocked on national-security grounds.

Rhodium's Hanemann said there is tremendous concern in the US over Chinese FDI in the telecom sector, and recent incidents involving ZTE mean such sentiment won't fade anytime soon. The company was recently accused of selling to Iran equipment from US technology companies Hewlett-Packard Co, Dell Inc, Cisco Systems Inc and Juniper Networks Inc, in violation of US export controls.

Alex Yong Hao, a New York-based partner of Jun He Law Offices, said 99 percent of Chinese investment in the US arouses no national-security issues but the 1 percent that do tend to raise eyebrows. "It is important to look at the big picture," he said.

Hao said the US system is still fair and open and that Chinese companies need to understand the US market and system better. The lawyer said his firm has received an increasing number of inquiries from Chinese investors and some have actually put in money.