Re­port: China-US in­vest­ment ties big­ger than thought

China Daily (USA) - - FRONT PAGE - By CHEN WEI­HUA in Wash­ing­ton chen­wei­hua@chi­nadai­lyusa.com

While China-US eco­nomic re­la­tions un­der the next US ad­min­is­tra­tion have been the topic of much spec­ula-tion lately, a re­port re­leased on Mon­day showed that bi­lat­eral in­vest­ment ties are far stronger and hold greater po­ten­tial than most peo­ple re­al­ize. The re­port, Two-Way Street: 25 Years of US-China Di­rect In­vest­ment, is a study by the Na­tional Com­mit­tee on US-China Re­la­tions (NCUSCR) and Rhodium Group, which tracks Chi­nese for­eign di­rect in­vest­ment (FDI) in the US. Based on its own novel dataset, the study finds that the com­mer­cial stakes on both sides are two to fou times higher than com­monly used statis­tics sug­gest. While China’s of­fi­cial sta-tis­tics put the Chi­nese FDI stock in the US at $41 bil­lion (twice the of­fi­cial US esti-mates of $15 bil­lion to $21 bil­lion), the study counted 1,200 in­di­vid­ual trans­ac­tions be­tween 1990 and 2015 with a com­bined value of $64 bil­lion. The same goes for US FDI in China. Un­like the US Bureau of Eco­nomic Anal­y­sis’ fig­ure of $75 bil­lion in stock of US FDI in China as of 2015 — and China’s Min­istry of Com­merce’s num­ber of $70 bil­lion — the study counted some 6,700 US in­vest­ments in China with a com­bined value of $228 bil­lion. “We hope this is an­other con­tri­bu­tion we can make to bring­ing more transpar-ency in US-China in­vest­ment re­la­tions,” said Thilo Hane-mann, di­rec­tor of Rhodium’s cross-border in­vest­ment prac­tice and one of the au­thors of the re­port.The data show that while some Amer­i­cans are ea­ger to talk about im­pos­ing re­ciproc-ity re­quire­ments for in­bound Chi­nese FDI, the cu­mu­la­tive value of US FDI trans­ac­tions per­mit­ted in China to date is four times that of China in the US. While many Chi­nese com­plain about the lack of open­ness in the US, the data show that the US is open and wel­com­ing to Chi­nese

in­vest­ment, and that Chi­nese com­pa­nies are now in­vest­ing more in the US an­nu­ally than US com­pa­nies are in China.

These ob­ser­va­tions em­pha­size that both sides need to re­con­sider the data be­fore stak­ing out new pol­icy po­si­tions, ac­cord­ing to the re­port.

The study also finds that ben­e­fits from FDI are huge for both sides, mostly at lo­cal lev­els. US com­pa­nies now em­ploy 1.6 mil­lion work­ers in China, while Chi­nese FDI in the US at an ear­lier stage has al­ready cre­ated more than 100,000 US jobs.

Steve Or­lins, pres­i­dent of the NCUSCR, said that un­like trade, which has been con­tro­ver­sial in the US elec­tion, in­vest­ment cre­ates jobs.

He re­called a trip four weeks ago to Day­ton, Ohio, where Chi­nese com­pany Fuyao Glass opened the world’s largest au­to­mo­tive glass fa­cil­ity in a closed GM fac­tory, hir­ing more peo­ple than the pre­vi­ous GM fac­tory had.

“I watched the re­birth of the com­mu­nity. That’s part of what this story is to­day,” Or­lins said.

The new study also finds the new pic­ture of US-China FDI dif­fers from the pre­vi­ous two decades, in terms of in­dus­try pat­terns, mo­tives and in­vest­ment com­po­si­tion. For ex­am­ple, US in­vest­ment in China has shifted from the early days of seek­ing lower man­u­fac­tur­ing costs to con­sumer-ori­ented ob­jec­tives.

It said that US-China bi­lat­eral in­vest­ment is nowhere near sat­u­ra­tion. “Chi­nese com­pa­nies have just started to op­er­ate over­seas” while “US com­pa­nies are more than ready to in­crease in­vest­ment in China, es­pe­cially to en­gage the Chi­nese con­sumer and com­pete in growth sec­tors such as health­care, re­search and devel­op­ment and mod­ern ser­vices.”

“The as­sump­tion that FDI flows to China have peaked be­cause it is wealth­ier to­day is mis­taken,” the re­port said.

Ken­neth Jar­rett, pres­i­dent of the Amer­i­can Cham­ber of Com­merce in Shanghai, cited a sur­vey early this year that shows that 80 per­cent of its mem­bers said they would in­crease their in­vest­ment in China in 2016.

He said the new re­port came at an im­por­tant junc­ture “as we con­tem­plate what the agenda for the in­com­ing Trump ad­min­is­tra­tion will be”.

Jar­rett said much work has been done on the Bi­lat­eral In­vest­ment Treaty (BIT) be­tween China and the US, and hoped it would be a valu­able pol­icy ob­jec­tive for the new ad­min­is­tra­tion as well. He ar­gued that in the BIT, China will give much more than the US, be­cause the US in­vest­ment en­vi­ron­ment is quite open al­ready.

There has been wide­spread con­cern whether or not BIT ne­go­ti­a­tions will still be vi­able in the Trump ad­min­is­tra­tion given the fate of the Trans-Pa­cific Part­ner­ship, which Trump and the new Congress have de­cided to put to death.

“Pres­i­dent Trump talks about good deals and bad deals. This would fall into the cat­e­gory of good deals,” Or­lins said of the BIT be­tween China and the US.

John Wadsworth Jr, co­founder of Man­i­tou Ven­tures, de­scribed the BIT as “the big­gest op­por­tu­nity on earth for fi­nan­cial ser­vices.”

On Mon­day, US Trade Rep­re­sen­ta­tive Michael Fro­man said it’s im­por­tant to re­al­ize a high-stan­dard BIT that re­ally re­forms and opens up the Chi­nese econ­omy and cre­ates real dis­ci­plines to ad­dress the kinds of prob­lems that our com­pa­nies still had in their mar­ket. “Again we made progress, but we are not there yet,” he said.

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