China

Why the U.S. Needs Chinese Investment


The AMC Chesterfield 14 movie theater in Chesterfield, Mo.

Photograph by Bloomberg

The AMC Chesterfield 14 movie theater in Chesterfield, Mo.

On Sept. 28, President Obama exercised his executive authority to block an overseas investment deal by a Chinese company on grounds it posed a potential national security threat. As a result, China’s Ralls and parent company Sany Group (600031:CH), a diversified industrial company, must discontinue plans to build a series of wind farms in Oregon because of the project’s close proximity to a U.S. naval base.

Unlike Chinese companies that have attempted overseas transactions in more sensitive industries, such as Huawei and ZTE (763:HK) in the telecommunications industry and China National Offshore Oil Corporation (CNOOC) (883:HK) in the oil and gas industry, Sany’s core business is industrial machinery and its investments are primarily guided by economic, not political interests. Sany’s investments in Europe have been welcome. Sany recently acquired Germany’s Putzmeister, a specialized cement-pump machine maker. Obama’s motivation in deciding to block Sany may well have been to help his presidential campaign: “Cracking down on China” is a spotlight issue for both the Democratic and Republican parties. If future investment decisions by Chinese companies meet similar resistance, though, the end result of such decisions will hinder, not help the U.S, economic recovery.

China’s own economic slowdown is affecting the latest earnings reports of U.S. companies, including Nike (NKE) and McDonald’s (MCD), which depend on China’s growing economy to fuel their rapid international expansion. However, China’s domestic economic environment is not preventing its companies from investing overseas in record numbers in both the developing and developed worlds. According to the Rhodium Group, a policy think tank, Chinese investment in the European Union reached $10 billion in 2011. The United States has seen Chinese investment increase dramatically, too, from a total of $3 billion in all of 2011 to $8 billion already in 2012, according to the Heritage Foundation’s China Global Investment Tracker.

China’s investments are growing in frequency and in diversity across sectors. While Chinese overseas investments were historically thought to be strategically based on China’s hunger for natural resources, 2012 has brought a variety of transactions, from Shandong Heavy Industry’s buyout of Italian yacht maker Ferretti, to Shanghai Bright Food Group’s investment in England’s Weetabix breakfast brand, and most notably, here in the U.S., where Dalian Wanda purchased the AMC movie theater chain. These investments in Western economies have tangible economic benefits for all parties involved and should be welcomed, not blocked.

While proposed deals by Huawei and Sany have run into difficulties, state and city governments in the U.S. overall welcome Chinese investments with open arms. It is important for the United States as a whole to recognize the benefits that can ensue from Chinese overseas investment, ranging from job creation to increased tax revenues and improved infrastructure, as well as the ability to access the world’s second-largest economy with U.S. exports that reached $103.9 billion in 2011, according to the US-China Business Council. It is critical that the U.S. government promote a consistent message welcoming Chinese investment.

In addition, the regulatory body that screens foreign investments, the Committee on Foreign Investments in the United States (CFIUS), should develop a clear process for Chinese companies that are planning to invest in the U.S. CFIUS’s current process to determine whether a foreign company’s investment in the U.S. poses a threat to ‘national security’ lacks clarity and consistency. As Chinese investments continue to increase, whoever assumes office in 2013 should make the promotion of  Chinese investment in the United States a priority—both to improve bilateral relations with China and to fuel the U.S. economic recoveryy.

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Joel Backaler is a director at Frontier Strategy Group, an emerging markets-focused business advisory firm based in Washington, with regional offices in Singapore, London, and Miami. He is also author of TheChinaObserver.com, an award-winning China business blog. A fluent Mandarin speaker and former Fulbright scholar, he has lived and worked in Taipei, Beijing, Shanghai, and Singapore.

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Companies Mentioned

  • NKE
    (NIKE Inc)
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  • MCD
    (McDonald's Corp)
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