Lessons for Chinese deal-makers in America
Howard Chao says Chinese investment is largely being welcomed in the US, despite a few high-profile cases that may suggest otherwise, and companies can ease market access by avoiding pitfalls to deal-making
The investment community has long awaited the growing wave of direct investment by China into the United States. Now, finally, despite continuing challenges, the US is swimming in Chinese capital. The Rhodium Group calculates that total Chinese direct investment in the US last year was US$6.5 billion, the highest ever, and the first half of this year has already seen US$4.7 billion of investment.
Nevertheless, there is a lot of room to grow - the Ministry of Commerce estimates that Chinese outbound direct investment reached US$45.6 billion in non-financial sectors for the first half of this year, up 29 per cent year on year.
There continues to be a feeling prevalent within Chinese circles that the US is hostile to Chinese investment
The first big wave of China's outbound investing was focused on natural resource and commodities plays. But, with the downturn in China's export economy and the related cooling of world commodities markets, such investments are less important. Today, a more urgent motivation to invest offshore is China's need to diversify its foreign reserve holdings.
Most of its reserves are tied up in US Treasuries and other government-backed securities, but as the Federal Reserve has made clear, interest rates will eventually go up and China stands to suffer massive principal losses on its bond holdings. Hence, it needs to diversify.
What should those other assets be? The rational choice is for China to allocate more investments to the US, still by far the world's largest and strongest economy. US property markets are recovering, gross domestic product growth is back, employment is improving and US innovation continues to outpace the rest of the world.
Yet there is still a feeling prevalent within Chinese business and government circles that the US is hostile to Chinese investment. How big is this problem?
Certainly, there have been several unfortunate cases where US government actions or public opinion caused a Chinese investor to pull out. Notable early cases include aborted transactions by China National Offshore Oil Corporation and Huawei.