China FDI in US still heat­ing up

China Daily (Canada) - - ACROSS AMERICAS - By PAUL WELITZKIN in New York paulwelitzkin@chi­nadai­

2016 is likely to be an­other record year for Chi­nese for­eign di­rect in­vest­ment (FDI) in the US, although the Amer­i­can po­lit­i­cal cli­mate could af­fect the in­flow, ac­cord­ing to a new re­port.

China’s FDI in the US grew to more than $15 bil­lion in 2015, set­ting a new record, with over $30 bil­lion al­ready in pend­ing deals and projects in the first quar­ter of 2016.

New Neigh­bors: 2016 Up­date was re­leased on Tues­day by the Na­tional Com­mit­tee on US-China Re­la­tions and the Rhodium Group, an eco­nomic re­search firm. It is a fol­low-up to a 2015 study on Chi­nese FDI that in­cludes a break­down of Chi­nese in­vest­ment in US con­gres­sional dis­tricts.

The 2015 FDI to­tal ex­ceeded the $12 bil­lion in 2014 by nearly 30 per­cent, and 2015 was the sec­ond con­sec­u­tive year that merg­ers and ac­qui­si­tions by Chi­nese in­vestors topped more than 100 deals, to­tal­ing $13.5 bil­lion, ac­cord­ing to the re­port.

“2016 will by all means be a new record year for Chi­nese in­vest­ment in the US bar­ring any ma­jor dis­rup­tions,” said Thilo Han­ne­man, co-author of the re­port, at Cov­ing­ton & Burl­ing LLP in Wash­ing­ton, where the re­port was re­leased.

The num­ber of Chi­nese-af­fil­i­ated com­pa­nies in the US ex­ceeded 1,900 at the end of 2015, ex­tend­ing across more than 80 per­cent of con­gres­sional dis­tricts.

New York was the lead­ing state for Chi­nese in­vest­ment in 2015. As green­field (new ven­ture) for­eign di­rect in­vest­ment (FDI) picked up and many ex­ist­ing com­pa­nies ex­panded em­ploy­ment, the num­ber of Amer­i­cans em­ployed by Chi­ne­seaf­fil­i­ated com­pa­nies rose by 12 per­cent to 90,000 at the end of last year.

“Bro­ken down by in­dus­try, the most im­por­tant trends are that Chi­nese com­pa­nies are build­ing en­ergy-in­ten­sive or en­ergy de­pen­dent fac­to­ries in the US. They’ve started to dis­cover a com­pet­i­tive ad­van­tage in the US in­clud­ing cheap en­ergy,” said Han­ne­man.

Michael De­Franco, chair­man of the Baker & McKen­zie LLP law firm’s global M&A prac­tice, is con­fi­dent China can main­tain the cur­rent pace of FDI.

“Chi­nese com­pa­nies are act­ing with con­fi­dence and con­tin­u­ing to make ma­jor moves in Europe and North Amer­ica. We see no let up in that in­ter­est — far from it — we ex­pect Chi­nese in­vest­ment into Europe and North Amer­ica to hit fur­ther record highs in 2016,” he said.

David Fa­gan, a part­ner at Cov­ing­ton and Burl­ing LLP, where he co-chairs the firm’s top ranked prac­tice on cross­bor­der in­vest­ment and na­tional se­cu­rity mat­ters, said at the Wash­ing­ton event that the economies of China and the United States are truly in­ter­twined.

“In turn, the eco­nomic re­la­tion­ship that can be forged through in­vest­ment is not just some­thing that is eco­nom­i­cally ben­e­fi­cial. The re­la­tion­ships that can de­velop through this type of in­vest­ment can help bal­ance some of the po­lit­i­cal dif­fer­ences be­tween the two coun­tries,” Fa­gan said.

The reg­u­la­tory and po­lit­i­cal en­vi­ron­ment in the US is an im­por­tant con­sid­er­a­tion when pro­ject­ing fu­ture Chi­nese in­vest­ment, the re­port said.

It says that the Com­mit­tee on For­eign In­vest­ment in the United States (CFIUS), which re­views for­eign ac­qui­si­tions for na­tional se­cu­rity risks, “gen­er­ally man­ages to screen for le­git­i­mate con­cerns with­out clos­ing the door on be­nign Chi­nese deal-mak­ing’’.

On de­bate in the US about Chi­nese FDI, the re­port says: “It is es­sen­tial that the de­bate in the US is ob­jec­tive, grounded in fact, and awake to both the po­ten­tial risks and po­ten­tial ben­e­fits from Chi­nese in­vest­ment.

“The pres­i­den­tial elec­tion cy­cle el­e­vates the risk that this de­bate may take the op­po­site turn in 2016. The first months of the year have pro­duced nu­mer­ous in­stances of politi­cians from both par­ties chas­ing votes and me­dia at­ten­tion by is­su­ing dire but ill-founded warn­ings about Chi­nese in­vest­ments, and in­tro­duc­ing bills that pro­pose se­verely clamp­ing down on tra­di­tional US open­ness to FDI.’’

So­phie Me­u­nier, re­search scholar at the Woodrow Wil­son School of Pub­lic and In­ter­na­tional Af­fairs at Prince­ton Univer­sity, said the po­lit­i­cal dis­course over Chi­nese in­vest­ment in the US has split in two.

“A pos­i­tive nar­ra­tive has emerged at the lo­cal level, with may­ors, con­gress­men and gov­er­nors try­ing to at­tract FDI from China in or­der to preserve and cre­ate jobs,” she said.

“A neg­a­tive nar­ra­tive of Chi­nese in­vest­ment has emerged at the na­tional level, how­ever, with sim­plis­tic po­lit­i­cal pos­tur­ing about the dan­gers of China tak­ing over the Amer­i­can econ­omy and so­ci­ety through for­eign in­vest­ment,” Me­u­nier wrote in an e-mail.

She said that re­search in­di­cates that the back­lash against Chi­nese in­vest­ment usu­ally comes from a dif­fer­ent po­lit­i­cal district than the one in which the in­vest­ment is lo­cated.

Allan Fong in Wash­ing­ton con­trib­uted to this story.


Em­ploy­ment pro­vided by Chi­nese-af­fil­i­ated com­pa­nies in the US An Amer­i­can em­ployee car­ries a piece of glass at China-based Fuyao Group’s man­u­fac­tur­ing plant in Day­ton, Ohio, in this file photo.

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