China's FDI in US set for increase

Economic changes in China have set up the world's second-largest economy for a "structural increase" of foreign direct investment in a broad range of industries in the United States over the next decade, according to a director at a New York-based global research and advisory firm.

"China is only at the beginning of a structural catching-up process in global outbound investment," Thilo Hanemann, research director with the Rhodium Group LLC, said in an e-mail to China Daily over the weekend.

Hanemann, who leads RHG's cross-border investment work, said the US will see "strong inflows in the next decade", but the amount of investment from China will depend on a number of factors.

Those include "the relative attractiveness of the US economy, the ability of Chinese firms to compete in an advanced market like the US and the progress both countries make in sustaining two-way openness to investment".

"Irrespective of annual trends, China is emerging as an increasingly important investor in the US, and this is a natural process given China's economic size and maturing economy. The US is very open to Chinese investment at the moment, but China needs to make faster progress in leveling the playing field," he said.

China's FDI in the US in the first half of 2014 declined slightly year-on-year, and the focus shifted from acquisitions of assets to real estate, advanced services and manufacturing, according to a report from RHG.

"Investment ... continues to boom as investors and developers are looking for risk diversification and new opportunities abroad," the report said. "Higher incomes, domestic pollution and streamlined visa policies in the US have contributed to a growing physical presence of Chinese citizens in the US."

The report also noted an increase in the average amount of money spent on these deals by Chinese investors, as well as an increased tendency for Chinese spending on greenfield investments (previously undeveloped project sites).

Even though FDI declined in the first half, there is a "very strong pipeline for the second half", the report said.

Chinese investment in the US doubled to $14 billion in 2013, and investors made deals valued at more than $10 billion in the first half of 2014 alone, according to RHG.

Investment in the US high-technology sector formed the core of China's FDI through the first quarter of 2014, with the announcement of more than $6 billion in such deals.

An April report from RHG forecast that China's outbound FDI could grow to $1 trillion to $2 trillion by 2020.

Although $10 billion in deals have been disclosed so far this year, Hanemann said it is important to note that completed investments for the first half of 2014 totaled just slightly more than $3.5 billion.

"Some (deals) may not actually materialize," he said. As a result, it is "unlikely" that Chinese FDI in the US will surpass last year's figure.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, said he agreed with RHG's forecast that Chinese investment in the US will increase significantly over the next decade.

"If we look out conservatively over 10 years, investment will double in terms of the size of FDI stock in the US," Hufbauer said on Friday in an interview with China Daily. "Going the other way, if the liberalization agenda announced by President Xi Jinping during the Third Plenum takes hold, then US investment in China should also sharply increase."