NEW YORK – Chinese investment in U.S. companies was "hardly noticeable before, but now it is rising sharply," according to a new report released by the U.S.-China Economic and Security Review Commission.
Should we be worried? Is this some sort of Trojan horse?
I wouldn’t go that far.
The report to Congress, “An Analysis of Chinese Investments in the U.S. Economy,” offers a detailed look at China's foreign direct investment (FDI) in the U.S. and the potential economic benefits.
The cumulative value of Chinese investments grew to $30 billion through the end of 2011, compared to $5.8 billion at the end of 2010. As the chart below shows, Chinese FDI here has been rising steadily over the last decade. What sectors is China targeting with its U.S. investments and what if any strategy can we divine from these statistics?
China's Foreign Direct Investments, 1982-2010
(Unit: Billions of dollars)
Source: UNCTADSTAT http://unctadstat.unctad.org/TableViewer/tableView.aspx.
The U.S.-China commission's statistics reveal that China’s state-owned and state-controlled enterprises (SOEs) are dominating China’s outward investments
Beijing “has made a conscious decision to diversify its foreign currency assets into hard assets,” the report explains. This has led to the creation of sovereign wealth funds that make portfolio investments in U.S. equities, private firms and real estate, according to the report.
The Chinese government’s FDI strategy is also shifting. While Chinese leaders previously encouraged investments “almost exclusively toward energy and resource acquisition in developing countries,” it now also encourages “investments in advanced countries,” such as the U.S.
Beijing’s goals for these investments include “securing energy and mineral resources and acquiring advanced technologies in industries where China wishes to leapfrog existing competitors." This strategy falls in line with China’s industrial policy as articulated in Bejing's 12th Five-Year Plan.
The acquisition of advanced technologies reflects China's strategy as a "second-generation innovator" that tailors technologies to its domestic market, then innovates from the ground up through manufacturing advances.