The logic of Chinese investments in the U.S.

From: People's Daily Online Updated: 2014-03-19 10:21
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In 2014, Chinese business has maintained the momentum of its investment in foreign countries, with overseas mergers and acquisitions also continuing to be popular. Lenovo recently announced the purchase of the IBM X86 server business, Wanxiang Group won approval to purchase Fisker Automotive, and Kinye Group plan to enter the oil and gas field business in the U.S. All these instances show that as its economy recovers, the U.S. has become an important target for Chinese investment.

According to statistics released by Rhodium Group, last year China's investment in the U.S. doubled, reaching a record high of 14 billion USD. FDI from Chinese private enterprise also increased quickly: before 2011, private companies only represented 30 percent of China’s total investment in the U.S.; in 2012 this figure leaped to 54 percent; and in 2013 it was 76 percent. The scope of investment keeps expanding too, covering areas such as food, real estate, energy, IT, and health care.

China is in an important period of economic reform, and favorable changes to domestic business policies provide a good opportunity for enterprises to invest in foreign countries. With the rising costs of labor, land and management in China, and the fluctuations in the exchange rate of the yuan, Chinese enterprises are actively going abroad through mergers and acquisitions so as to take full advantage of overseas resources, and in search of high-yield investment projects. At the same time, China's government has reformed the management system for foreign investment, simplified approval procedures, and pressed forward with cross-border direct investment.

The external environment is also an incentive for Chinese enterprises to go abroad. Firstly, since the outbreak of the international financial crisis, promoting employment has become a priority for the US government. The Obama government is looking to create more job opportunities through absorbing foreign capital, providing a favorable situation for Chinese enterprises. In fact, Chinese investment is creating a win-win situation: by the end of 2013 Chinese enterprises had created more than 70 thousand job opportunities in the U.S.

Secondly, "reindustrialization" is an important part of U.S. strategy. While the U.S. government improves the business environment to attract investment, China's high-end manufacturers are seizing the resulting opportunities. And thirdly, investing in the U.S. helps Chinese enterprises to improve their research and design ability, and get closer to American consumers through developing local logistics and distribution channels.

The rapid increase in China's investments in the U.S. has its internal logic. As the world's biggest mature market, with the most advanced technologies and the strongest R&D capability, the US will continue to attract Chinese investment. Areas with the greatest investment potential include infrastructure, energy, and middle and high end manufacturing.

The article is edited and translated from《中国企业投资美国的合理性》, source: People's Daily, author: Hao Jie.

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