Chinese FDI in the U.S. in 2012: A Record Year Amid A Gloomy FDI Environment

2012 was a record year for Chinese investment in the United States. Chinese firms completed U.S. deals worth $6.5 billion, a 12 percent increase from the previous record of $5.8 billion in 2010. This new record reflects both the growing determination of Chinese firms to expand overseas and the attractiveness of U.S. markets and assets to these investors.

The most alluring sectors in the U.S. are oil and gas extraction, advanced manufacturing operations that help Chinese firms to move up the value chain, and assets that allow investors to store value and gain stable returns such as utilities, real estate or hospitality. Deals closed in 2012 show this diverse mix of motives, with large-scale investments in the extractive industry (Sinopec’s $2.5 billion stake in Devon Energy), high-tech manufacturing (Wanxiang’s $420 million stake in GreatPoint Energy) and entertainment (Dalian Wanda’s $2.6 billion purchase of AMC).

Deals currently awaiting regulatory approval suggest that the growth story will continue in 2013: A Chinese consortium has agreed to purchase an 80 percent stake in AIG’s aviation leasing unit International Lease Finance Corp. (ILFC) for $4.2 billion; auto parts maker Wanxiang has won the non-defense business of battery producer A123 Systems in a bankruptcy auction; and BGI Shenzhen is waiting for regulatory approval to purchase California-based biotech company Complete Genomics for $118 million. In short, we are in the midst of a structural growth story that will transform the China-US investment relationship from a one-way street into a two-way street.

Against the Global Trend

The recent growth of Chinese investment is even more remarkable in light of an otherwise bleak FDI picture in the United States. Before the global financial crisis, the United States was the world’s premier destination for foreign direct investment with annual inflows of $200-300 billion. When the crisis hit in 2009 FDI dropped by more than half. In 2010 and 2011 inflows have somewhat stabilized but declined again sharply in 2012 in light of the fragile situation in Europe (which the major source of FDI for the US) and uncertainties for the US growth outlook. Preliminary data from the Bureau of Economic Analysis shows that FDI dropped by more than 30 percent in the first three quarters of 2012, which indicates that the full year figure will come in at levels not seen since the crisis year 2009 (Figure 2).

These trends suggest that China could follow other Asian economies in becoming an important source of FDI for the United States. China today accounts for less than 1 percent of total U.S. inward FDI stock, but it has become one of the few bright spots in an otherwise gloomy FDI environment. Compared to five years ago, FDI flows from European economies and Canada were down by more than 50 percent in the first three quarters of 2012. FDI from Asia was holding up better, and China is among the few countries that invested more in the United States than five years ago – an increase of more than 300 percent according to official statistics from the Bureau of Economic Analysis (Figure 3).

These estimates are likely too low as the BEA Balance of Payments figures do not account for flows through offshore financial centers. Figures from Rhodium Group’s China Investment Monitor, which account for such flows, suggest that the increase was even more significant, by nearly 1,300 percent over five years. Growing investment from China increasingly brings benefits for local economies, for example in the form of employment. Today Chinese firms already employ 29,000 people in the United States, up from less than 10,000 just five years ago.

Page 1 of 2 | Next page