Cited: CNN
When ex-pats from China go back home for a visit, a lot of them say they are bombarded with questions about investment opportunities and businesses opportunities in the United States. Not too long ago, Chinese nationals returning home for a visit were treated to the usual family dinner and time spent catching up with friends and acquaintances. The conviviality would soon turn to business with local Chinese businessmen clamoring for ideas to get American dollars invested in China. From medical equipment, cooking utensils, golf courses and the latest energy drinks on the market, Chinese businessmen were presenting every opportunity they could think of to American investors. But now the conversation has changed, at least to some extent. With China experiencing an economic boom, and their coffers filled with U.S. dollars, Chinese investors are looking for good business opportunities in the U.S. for their money.
One of the most visible signs of China’s growing appetite to put capital to work in overseas markets is in the higher level of their outward direct investment (ODI)in other countries. While the developed economies of the West have been decline for much of the last five years, China’s investment in these countries has increased to $68 billion, fifth highest ODI in the world. For the first time China has leaped over the ODI of Japan and the UK, traditionally high overseas investors. Chinese officials expect that China’s ODI will continue to grow substantially and within three years they predict that China’s ODI will exceed investments coming into China from other countries. In addition to a glut of their Western currency looking for a productive home, the impetus behind China’s capital outflow can also be traced to revisions in their ODI laws five years ago, at which time officials eased restrictions and thereby opened up the overseas investment market to many large and medium sized private Chinese businesses.
The shift to more private Chinese investors pouring money overseas has an interesting component and one that is far different than the state-sponsored investment flows that have dominated China ODI projects in the past. While more official Chinese dollars have been directed at projects associated with the long-term growth and development issues China will face in the future, such as the need for more and more raw materials and advanced technology, private investors seem to have more of an appetite for smaller, private businesses such as in setting up local distributors for their products and setting up satellite centers to re-export their goods. Another reason for privately held Chinese investment capital making its way out of the country, and in particular, to the U.S., is the very strict and immature local investment markets in China, most of which are dominated by huge government run state enterprises. The markets in the U.S. offer the private Chinese investor a host of positive elements not found at home or in a lot of other markets, such as, well-developed capital markets, an independent legal system, advanced technology, and a highly skilled, highly educated workforce.
Investment overseas sounds like a reasonable way for China and Chinese investors to diversify their economy and to weather the financial storm in most areas of the world, but its not that easy. Regulatory authorities in both the U.S. and China are taking a hard look at every deal with one side wanting to keep a lid on money flows to the U.S. while for its part the U.S. wants to guard against breaches to national security that could follow from China buying into or buying up a company involved in high-tech projects usually associated with security.
M y take:
Business always seems to have a habit of making for strange bedfellows and in the case of China and the U.S., these bunk mates are no strangers. Its probably a good thing for relations with China going forward if our economic well-being is more closely tied to one and other. Its also a good thing if we are also linked in other ways like culturally and socially so that misconceptions and false propaganda about both fade into time.