Chinese Investment in the United States 2015
Between 2011 and 2013, the value of China’s mergers and acquisitions (M&A) in the United States exceeded the value of U.S. M&A deals in China.1 While it is too early to call this a permanent turning point, Chinese companies are poised to deepen their presence in the United States. Despite a recent economic slowdown, China remains a dominant goods exporter and is growing at a faster clip than the rest of the world. China’s central bank holds some $4 trillion in foreign exchange reserves, and Chinese companies and wealthy individuals are eager to diversify their assets overseas.
Although there is a steady stream of analysis on Chinese outbound investment, less well documented is how this investment is distributed among different industries and localities across the United States.* Highly publicized deals, such as Shuanghui Group’s $4.72 billion acquisition of Smithfield Group in 2013 and Lenovo’s $2.95 billion acquisition of Motorola Mobility in 2014, can obscure the bigger picture. Smaller transactions are less consequential for the national economy, yet may exert a tangible impact on states and local communities. Investment patterns are determined to a large degree by China’s economic policies and corporate strategies. Viewing Chinese investment from this broader perspective helps shed light on other important issues, such as Chinese purchases of U.S. homes, the granting of EB-5 visas,† and bilateral research exchanges.
To explore these issues, Commission staff conducted a series of telephone and e-mail interviews with over a dozen U.S. state officials between August 2014 and February 2015.‡ These interviews were supplemented by analysis of state government websites, media and industry reports, as well as quantitative data on trade and investment flows. The paper’s principal conclusions are:
The investment promotion efforts of U.S. states vary widely. Commission staff counted 25 states with representative offices in China. Among these, states from the U.S. South, such as Georgia and the Carolinas, conduct very active outreach. Michigan and California temporarily closed and recently reopened their China offices, substituting wholly government-run entities with public-private partnerships. Back in the United States, Maryland has developed a research incubator at College Park primarily to host Chinese firms. In contrast, energy-abundant states in the U.S. Southwest receive substantial Chinese investment but do not appear to run major outreach programs. New Jersey uses trade fairs to pitch its industries to Chinese investors.
China’s new leadership has reduced restrictions on outbound investment over the past year, while a gradual recovery is raising the appeal of the U.S. economy in the eyes of foreign investors. That suggests Chinese investment in the United States will continue to expand, particularly as Chinese companies and individuals accrue wealth and China’s central bank attempts to diversify the country’s large foreign exchange reserves.
Wealthy individuals and corporate entities from China are investing extensively in U.S. residential and commercial property, foremost in wealthy coastal cities such as New York and Los Angeles. China’s commercial investors range from Dalian Wanda Group Co. Ltd., China’s largest commercial property company and the world’s largest cinema chain operator, to state-owned insurance companies. Private individuals, many of them tied to China’s economic elite, prefer to buy U.S. properties using all cash and treat them as secondary residences to generate rental income. The influx of Chinese investment is buoying local property markets, but it also presents a challenge to state officials who struggle to administer the volume of deals and prevent misconduct.
A related concern is China’s extensive use of the EB-5 visa program, which allows foreign nationals and their family members to receive conditional green cards in exchange for an investment of $1 million, or $500,000 in geographic areas of the United States that have high unemployment rates—also known as Investor Targeted Employment Areas (TEAs). The applicants’ investments are certified by authorities at the local level, and the resulting certificates are used to apply for a conditional green card at the federal level with U.S. Citizenship and Immigration Services (USCIS). The program has been flooded by Chinese applicants, to the extent that the applicant vacancies were filled prematurely in fiscal year 2014. Instances of fraud and lax regulation have cast doubt on the ability of local authorities to screen Chinese EB-5 investors properly.
Although EB-5 investors can act on their own, they often turn to Immigrant Investor Regional Centers (“Regional Centers”) to help identify and vet projects that qualify for the EB-5 program, and to seek assistance with domestic and international compliance work. Regional Centers are not subject to regulation by U.S. state governments. USCIS approves the Regional Centers but explicitly states it does not endorse their behavior or guarantee their compliance with U.S. securities laws. In addition, TEAs are fairly easy to qualify for, even in California, a state that has standardized its TEA regulations using Census tracts.
China’s business activities in the United States encompass a broad spectrum of industries, from light manufacturing operations that capitalize on cheap U.S. energy and farm goods, to corporate acquisitions in the automotive sector and research and development (R&D)-driven projects in healthcare and pharmaceuticals. Chinese investments exert divergent effects on job creation and involve a mix of private and state-owned companies. State officials have noted Chinese investors are often not as experienced as other international investors, and prefer to receive support from local officials over hiring private consultants.
Several aspects of Chinese investment merit closer consideration by U.S. policymakers:
Regulation of the EB-5 visa program could be improved in view of the rapid influx of Chinese investors and repeated instances of poorly executed and fraudulent EB-5 projects.
Federal programs could better assist local governments in identifying opportunities for China-focused investment promotion, as well as in assessing risks to critical infrastructure and technologies.
If implemented within an appropriate regulatory framework, local research incubators can contribute to U.S.-China R&D cooperation and deliver economic and societal benefits to both countries.
As Chinese investment in labor- and energy-intensive U.S. industries increases, adherence to U.S. labor and environmental laws—across all U.S. states—will be a priority issue.
Foreign investment from China into the United States is not sufficient to “rebalance” the bilateral economic relationship in terms of bilateral market access, goods trade, and the overall balance of payments.
This paper begins with a review of trends in Chinese outbound investment policy and the general composition of Chinese investment in the United States. Subsequent sections consider Chinese investments in real estate and a sample of U.S. industries. The final sections examine state outreach efforts more closely, and conclude with implications for the United States.
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