FDI Between China And The United States
Not What Many People Expect
By Steve Jones, About.com Guide
Updated June 24, 2012
"FDI Between China And The United States"
Americans have long griped about "foreigners" taking over the country. In the 1970s they complained about Japanese buying up U.S. interests. More recently, the target of American worry has been China.
Certainly, the American and global media have made much of China's economic ascendancy (and many news outlets predicting the impending burst of the China "bubble"). U.S. President Barack Obama and his administration are also paying more attention to the Asia Pacific region as a result of the economic "China syndrome."
But is China really buying up the United States?
In a word -- no.
To be sure, China does invest in the United States, as do many other nations. That's called foreign direct investment, or FDI. As I've written elsewhere, FDI is an expected and desirable part of globalized economics.
FDI comes in two parts -- inflow and outflow. Inflow FDI is a foreign nation investing in a home nation; outflow FDI is a home nation investing in a foreign nation. For instance, outflow FDI from the U.S. might allow investors to take advantage of foreign labor or resources. Inflow FDI from a foreign nation to the U.S. could provide capital that stimulates production and wages.
EconoMonitor reports that, in 2010, Chinese entities invested $3.2 billion in the United States. On the other hand, American entities invested $60.5 billion in China.
According to the UCLA Asian American Studies Center, FDI from all investors into China in 2007 was about $82 billion, while outflow was only $20 billion. As of 2006, China had invested a total of some $600 million in the U.S. compared to U.S. investments of more than $22 billion in China.
Reasons For Limited Chinese FDI
Okay, so the American masses can relax -- China is not buying out the United States. It's not even in the top eight foreign investors in the U.S., which in 2010 were Switzerland, the United Kingdom, Japan, France, Germany, Luxembourg, the Netherlands, and Canada.
Nevertheless, Chinese entities want to invest more in the U.S., and those 2010 investment numbers represent a 172% increase over 2009.
Chinese FDI into the United States may be low because of Chinese investors' inexperience at western deal-making, as some suggest (see the EconoMonitor link in the sources section below), or it may be because one of the types of Chinese investment triggers the economic xenophobia that causes Americans to think "foreigners" are buying out the country.
Chinese outflow investment can be either by private companies, or by the Chinese government. The government can invest through state-owned companies or through sovereign wealth funds (SWF).
Either way, that close government connection prompts American suspicions. Much like fears of the Soviet Union during the Cold War, Americans fear Chinese ulterior motives, anything from stealing business or government secrets to destabilizing the U.S. economy by investing heavily, then quickly withdrawing capital.
U.S. government pressure has resulted in the failure of several Chinese investment bids. The most famous -- or infamous -- of those is the 2005 attempt of the China National Offshore Oil Corporation (CNOOC) to buy the U.S. oil company Unocal.
American lawmakers worried about the lack of transparency of CNOOC ownership, and a Fox News quote by Gal Luft, director of the Institute for the Analysis of Global Security, revealed much about U.S. concerns. "It's not the government of Japan or France," Luft said. "We want to think about the fact that an American company falls in the hands of the Communist government of China."
In 2007 U.S. government opposition also shut down Chinese attempts to buy Maytag and make a partnership with 3Com. A Rand Corp study suggested that Huawei, the Chinese entity interested in 3Com, was closely tied to the Chinese military.
FDI Between China and the U.S.
