The past 12 months have seen a string of front page news items on Chinese investment into the US. Most recently， the Chinese government complained to US counterparts after technology firm Huawei’s acquisition of a small US telecom firm， ran into political opposition， forcing Huawei to give up on its purchase plans. The latest incident followed a couple of other failed acquisition attempts by Huawei that likewise encountered political resistance.Yet the latest kerfuffle， while it may have grabbed headlines， obscures a larger and much more important development: the past few years have seen a marked rise in the scope and value of Chinese investments in the US.With the issue set to play a prominent role in 2011 Strategic and Economic Dialogue (SED) agenda， Daniel Rosen， an adjunct professor at Columbia University and principal with the Rhodium Group， and Thilo Hanemann， a research director at Rhodium Group， released a comprehensive report on China’s direct investment to the US， “An American Open Door? Maximizing the Benefits of Chinese Foreign Direct Investment.” The authors predict that China’s global outbound direct investment will exceed one or even two trillion US dollars by 2020. As one of China’s major trading partners and a significant recipient of global outbound investment， the US may perhaps expect to be one of the primary beneficiaries of this increased Chinese investment funds. The authors， however， sound a note of warning: a growing perception in China that the US doesn’t welcome Chinese investment creates a real risk that Chinese investors will pass up opportunities to invest in the US.This article tackles the complex issues at play by addressing the following:?????How?is?Chinese?direct?investment?in?the?US?measured???????Have?Chinese?companies?succeeded?in?entering?the?US?market???????What?do?the?answers?to?these?questions?tell?us?about?the?difficulties? of investing in the US?The Perception problem: China’s View of the US Investment EnvironmentAccording to Ministry of Commerce (MOFCOM) figures， FDI in the US only accounted for about 2.5 percent of all of China’s outward direct investment in 2010. MOFCOM spokesperson Yao Jin attributed this low figure to “a lack of openness and transparency” in the US， citing the obstacles that Chinese companies， including Ansteel and Huawei， encountered as evidence of the problem. Researcher Mei Xinyu， associate research fellow with the Chinese Academy of International Trade and Economic Cooperation of MOFCOM， has gone even further， criticizing the US for “engaging in trade protectionism in the name of defending its national security.” Despite these dire predictions， in 2010 MOFCOM predicted a continued increase of investment into the US of approximately 50 percent year-on-year.This criticism highlights what Rosen and Hanneman see as the perception problem. While US regulation allows all foreign investment， subject to very limited exceptions， in China， the view taking hold is that the US investment environment is hostile to Chinese investment.Measuring China’s Investment in the USInadequate?official?data?on?China’s? direct investment obscures the true picture of China’s investment in the US. MOFCOM puts China’s direct investment in the US at US $1.39 billion for 2010， a significant increase from the US $980 million invested in 2009. Using MOFCOM’s methodology， which determines the destination of Chinese investment according to direct capital flows from China， the US received only 1 percent of China’s FDI in 2009. By that calculation， China invested as much in the US as it did in Luxembourg， and it invested six times more in each of the“tax haven” jurisdictions of the Cayman Islands and British Virgin Isles.The US Bureau of Economic Analysis (BEA)， using a “balance of payments” (BOP) method based on data officially reported by companies， estimates that China’s direct investment in the US reached only US $387 million for 2010 (using the “ultimate beneficial owner” to ascribe the origin of investment).Responding to shortcomings in both?the?BEA?and?MOFCOM?official? data， private efforts to track and assess the amount of Chinese investment abroad have recently gained momentum. Heritage Foundation Research Fellow Derek Scissors has announced the launch of the China Global Investment Tracker， which tracks successful and unsuccessful transactions from China by value， location and investment type from 2007-2010. (Please see our website to listen to his China Brief Insight podcast). Separately， the Rhodium Group launched the Chinese Investment Monitor， which also seeks to assess the value of Chinese investment into the US based on publicly-known transactions.Using this transactions-based ap- proach， rather than a BOP approach adopted in official data， the private datasets increases the assessed value of direct investment from China to the US by several times. This approach still ranks China behind key European trading partners and Japan in terms of the size of its US investments. But more striking than the current rank is the trend of strong， continuing growth in Chinese FDI in the US. Rosen and Hanemann note a 130 percent year-onyear increase in Chinese investment in the US over the past two years.Success storiesJust as official data on Chinese investment in the US underplays its scope and significance， a few highlypublicized and controversial failed investments(or rather， f a i l u r e s to invest) obscure the big picture of recent investment activity in t h e U S . Pe r h a p s the most prominent successful investment by a Chinese company is Lenovo’s acquisition of IBM’s personal computer business in 2005 (which is so often cited it risks being seen as the exception that proves the rule).Among other investments， Suntech’s success stands out as one of the few well-known examples of successful investment by a Chinese company in the US. After opening its greenfield operations in San Francisco Bay area with five employees in October 2007， Suntech is now estimated to have created 2000 US jobs. In 2010， the company opened its first North American fac- tory in the region of Greater Phoenix， Arizona， making it the first Chinese cleantech leader to bring manufacturing jobs to America.Other examples of successful Chinese investments in the US range from large-scale mergers and acquisitions in manufacturing and infrastructure (i.e. China Huaneng Group’s 50 percent acquisition of InteGen for US $1.23 billion in 2011， or CITIC’s acquisition of a 15 percent stake in AES Corporation for US $1.58 billion in 2009)， to small-scale greenfield operations in sectors including services， research and development(RD)， automotive manufacturing and biotech. Successful investments have even been made in the somewhat controversial telecom sector: the state of Virginia alone boasts Chinese telecom service and equipment operations run by China Telecom， China Unicom， Hua Wei and ZTE.ConclusionSo， what do these investment successes tell us about Chinese investment in the US?First， using reliable statistics will assist policy makers， businesses and analysts on both sides of the Pacific to appreciate the substantial growth of Chinese investments in the US. As Scissors notes，“better data make better policy.”Second， highlighting the uncontroversial investments made by Chinese companies helps draw attention to the valuable benefits they can create in terms of job growth and enhanced economic activity.Finally， despite the occasional failed investment， it’s important to recall the many success stories of Chinese FDI in the US-real-life examples that bear the fact the US welcomes foreign investment from all countries， including China.(The Author: lawyer at Allens Arthur Robinson and is currently at AmCham-China on an Endeavour Executive Award， an Australiangovernment scholarship providing professional development opportunities for high achievers in business. )
