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Asia Economy Last Updated: Jun 28, 2011 - 12:00 PM

Chinese direct investment abroad could total $1-$2trn by 2020
By Michael Hennigan, Founder and Editor of Finfacts
May 5, 2011 - 5:30 AM

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Chinese firms will place 1 to $2trn in direct investments around the world over the coming decade, according to a new report.

Chinese direct investment into the United States is more than doubling annually, with over $5bn in 2010 alone. A report undertaken by Asia Society’s Center on US-China Relations and the Kissinger Institute on China and the United States at the Woodrow Wilson International Center for Scholars provides the most comprehensive study to date of Chinese FDI (foreign direct investment) in the United States and outlines its enormous potential to create economic growth. But it warns that the United States may squander immense opportunities for employment and investment gains through political fear-mongering.

An American Open Door?: Maximizing the Benefits of Chinese Foreign Direct Investment (pdf). 

However, US Commerce Secretary Gary Locke warned on Wednesday at the launch of the report that China is backtracking on promises to make its economy more friendly to foreign companies, pointing to recent proposals to review and restrict investments in its economy.

The nominee for the post of US ambassador to China, said the Bureau of Economic Analysis reports that investors from China have a total stock of FDI in the United States of about $2.3bn.

"And the report being released today shows Chinese foreign direct investment to America doubling in each of the last two years. Chinese investors now have investments in at least 35 of our 50 states, across dozens of industries.

And the big question we’re really getting at today is pretty straightforward: Is more Chinese FDI in America a good thing?"
Secretary Locke said.

The answer is yes he added, noting that there are few industries where the Chinese or other foreign investors are restricted from investing in America.

"Unfortunately, that is not the case for American companies operating in China, where they are frequently shut out of entire industries, or they are forced to give up proprietary information as a condition of operating in China," he said.

US Secretary of Commerce Gary Locke, Washington DC, May 04, 2011. The Chinese-American who is a former governor of Washington State, has been nominated by President Obama to be the next US ambassador to China.
The commerce secretary said American and other foreign companies, in industries ranging from pharmaceuticals and biotechnology to entertainment, still lose billions of dollars from counterfeiting and IP theft in China every year. "To cite just one example, the Business Software Alliance estimates that nearly 80% of the software used on computers in China is counterfeit," he said.

According to the study, which uses new methodology to collect real-time data on Chinese FDI in the US, Chinese businesses have already established operations and created jobs in at least 35 of the 50 states. Texas has attracted the greatest share of Chinese investment, followed by New York, Virginia, Illinois, California, Michigan, Oregon, Delaware, New Jersey and Mississippi.

Contrary to popular fears about China’s growing economic influence, the study shows that the total value of Chinese foreign direct investments worldwide was about $230bn in 2009, roughly equivalent to Denmark’s. By contrast, the total value of US foreign direct investment is approximately $4trn.

While the report says China’s share of total direct investment in the United States is now miniscule - - just 0.1% - - it is accelerating. New data calculated for the study show that in 2010 alone, Chinese investments in the US totaled $5bn. The report estimates that Chinese firms in the US have already created more than 10,000 American jobs.

The authors say the report also provides surprising new details about the kinds of investments the Chinese are making in the US. “We have data that captures what the Chinese are doing on the ground right now,” say the authors. For example: how often the investors are government entities versus private firms; what types of industries are most often targeted; and how much money is being used to build new businesses rather than acquire existing companies.

Surging Chinese investment has triggered populist anxieties in the United States, just as Americans once feared economic domination by Japan. “Japanese investment in the United States during the 1980’s was as controversial as China’s,” the authors say, “but in the following years, US affiliates of Japanese companies invested hundreds ofbns of dollars in the United States, and today employ nearly 700,000 Americans.”

The report says US review mechanisms are doing an effective job of protecting vital security interests. But it warns that continued politicization of the review process will choke off future investment and cost Americans valuable opportunities for job gains and new streams of tax revenues.

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