A mu­tu­ally ben­e­fi­cial bi­lat­eral re­la­tion­ship

China Daily (Canada) - - SHANGHAI - By YU RAN in Shang­hai yu­ran@chi­nadaily.com.cn

US com­pa­nies in China have shifted their in­vest­ment pri­or­i­ties and are now fo­cus­ing on pro­duc­ing con­sumer-ori­ented goods in­stead of at­tempt­ing to keep their man­u­fac­tur­ing costs down, ac­cord­ing to the lat­est re­port by the Rhodium Group and the Na­tional Com­mit­tee on USChina Re­la­tions.

The re­port also found that Chi­nese com­pa­nies have been mak­ing more di­rect in­vest­ments into strate­gic as­sets in tech­nol­ogy, brands and tal­ents.

Ac­cord­ing to the Two-Way Street re­port, Amer­i­can com­pa­nies have been ac­tive in the Chi­nese economy since af­ter the 1979 re­forms, hav­ing in­vested hun­dreds of bil­lions of dol­lars.

Chi­nese in­vestors have in the past decade been ex­pand­ing their US pres­ence as well, turn­ing the for­eign di­rect in­vest­ment (FDI) re­la­tion­ship into a two-way street with bil­lions of dol­lars flow­ing in ei­ther di­rec­tion ev­ery year.

This two-way flow has im­por­tant eco­nomic and po­lit­i­cal im­pli­ca­tions, and has turned FDI into a first-or­der pri­or­ity in the bi­lat­eral re­la­tion­ship, said Daniel H. Rosen, a found­ing part­ner of Rhodium Group who leads the firm’s work in China.

“The change has ex­panded in re­cent years to in­clude pur­suit of fi­nan­cial re­turns and re­al­iza­tion that man­u­fac­tur­ers need to be closer to Amer­i­can con­sumers to de­fend mar­ket share in times of ris­ing la­bor costs in China,” said Rosen.

The re­port makes use of a new trans­ac­tions-based pro­pri­etary data­base to cre­ate a fully com­pa­ra­ble pic­ture of Amer­i­can FDI in China and vice versa from 1990 to 2015. It found that the depth of FDI in­te­gra­tion is greater than com­monly thought and an­nual pat­terns are rapidly evolv­ing.

The re­port added that Amer­i­can firms have been lead­ers in over­seas in­vest­ment in Asia for the past cen­tury and a half, and China has been an im­por­tant part of that story.

Since the 1970s, US multi­na­tion­als have been key pro­po­nents of nor­mal­iz­ing the re­la­tion­ship with China, and their operations in China have been cen­tral to ties be­tween the two coun­tries. Over the past quar­ter cen­tury, these firms have trans­ferred tech­nol­ogy, cre­ated jobs and helped re­shape the Chi­nese economy.

Of­fi­cial US es­ti­mates for the stock of Chi­nese FDI range from $15 bil­lion to $21 bil­lion. Of­fi­cial Chi­nese num­bers put the fig­ure at $41 bil­lion, more than twice the US es­ti­mates. Rhodium Group has main­tained a trans­ac­tional dataset on Chi­nese FDI in the US since 2011.

For the en­tire pe­riod of 1990 to 2015, the re­port counts more than 1,200 in­di­vid­ual trans­ac­tions with a com­bined value of $64 bil­lion.

“We count nearly 6,700 Amer­i­can in­vest­ments in China with a com­bined value of $228 bil­lion. Our dataset in­cludes more than 1,300 US com­pa­nies that have built sig­nif­i­cant operations in China, 430 of them in­vest­ing more than $50 mil­lion and 56 with bil­lion-dol­lar bets,” said Thilo Hane­mann, a direc­tor and econ­o­mist at Rhodium Group.

“The struc­ture of China’s economy is evolv­ing quickly, far faster than other ma­jor economies have in the past, and the na­ture of out­bound Chi­nese FDI is chang­ing quickly as a re­sult, re­flect­ing new mo­tives, in­ter­ests and as­pi­ra­tions.”

A com­par­i­son of the ag­gre­gate cu­mu­la­tive trans­ac­tion val­ues shows that the Amer­i­can FDI foot­print in China is still about four times larger than Chi­nese FDI pres­ence in the US. For an­nual flows, how­ever, the tide has turned in re­cent years and Chi­nese FDI to the US has out­weighed Amer­i­can FDI in China since 2015.

“FDI was key to China’s past eco­nomic suc­cess and was cen­tral to the global model that many US busi­nesses em­braced, gen­er­at­ing ben­e­fits for Chi­nese and US con­sumers,” said Steve Or­lins, pres­i­dent of the Na­tional Com­mit­tee on US-China Re­la­tions.

The FDI projects go­ing on in both coun­tries also cre­ate job op­por­tu­ni­ties — US com­pa­nies were found to be em­ploy­ing more than 1.6 mil­lion work­ers in China.

At an ear­lier stage, the ben­e­fits of Chi­nese pres­ence in the US are show­ing up too, at­tract­ing much needed cap­i­tal to the US while per­mit­ting Chi­nese com­pa­nies to tap into US advantages and cre­ate more than 100,000 jobs.

“These links also fa­cil­i­tate peo­pleto-peo­ple re­la­tion­ships to a greater ex­tent than trade and tourism. The ben­e­fits to­day are spread across more than 90 per­cent of US states and Chi­nese prov­inces,” said Rosen.

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