China’s direct investment in the economy of the US may reach $30bn in 2016, according to a report by financial research organisation Rhodium Group and the National Committee on US-China Relations.
If this comes to pass, it would be a doubling of the record $15bn invested last year in acquisitions, new operations and the expansion of existing operations.
The New Neighbours report estimates that more than 1,900 Chinese firms are established in the US, employing some 90,000 full-time workers.
Access to technology and talent remains an important driver of Chinese acquisitions in the US, as illustrated by a growing number of transactions in information and communications technology– New Neighbours report
The outflow of capital is being driven by the inability of the domestic economy to absorb the amounts of capital generated by China’s immense trade surplus with the rest of the world. This has been exacerbated by its transition to an internal consumption model: growth in 2015 slowed to 6.9%, its lowest in 25 years.
Altogether, outbound foreign direct investment (FDI) reached $120bn in 2015.
A significant change in the nature of China’s investment in the US is the growth of greenfield projects. In the past these have accounted for a low share of total Chinese FDI in the US, but growth in this category now outpaces growth in mergers and acquisitions.
Chinese spending on US greenfield projects totalled $1.8bn in 2015, an increase of 34% from 2014 levels. In 2015, 68 Chinese projects broke ground, including large schemes such as Yuhuang Chemical’s $1.85bn methanol plant in Louisiana, Tranlin Paper’s $2bn paper plant in Virginia, and a factory for Chinese carmaker Volvo in South Carolina.
Rhodium’s map of where in America Chinese investment is going (above) shows that Texas and New York are the hottest spots.
This partly reflects private investor Yantai Xinchao’s purchase of oil fields in northern Texas, and Chinese interest in New York’s financial and real estate sectors.
More generally, the report notes that the patterns of Chinese investment in 2015 show that "access to technology and talent remains an important driver of Chinese acquisitions in the US, as illustrated by a growing number of transactions in information and communications technology".
It adds that "several acquisitions from previous years have resulted in additional hiring, for example at Wanxiang-owned Neapco, which is expected to create more than 160 jobs as part of a $58m expansion".
The report also warns that the growth in Chinese interests, which it regards as entirely beneficial to the US economy, may be slowed by the regulatory and political environment.
It comments: "As with other countries hosting FDI from China, the US has both security concerns related to incoming investment and popular political and economic concerns inflaming protectionist sentiment if not addressed.
"Compared with many other advanced economies, the US conducts a narrow formal screening for objectionable deals.
"Nonetheless, since public debate is susceptible to alarmist theories of Chinese intentions, it is important to have a transparent national discussion on the risks and benefits of investment openness to maintain perspective."