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July 26, 2012

Chinese Investment in US at Record High in Energy and Banking

By Economy Watch

China’s direct investment in the United States is expected to reach a new high of at least $8 billion this year, mostly on the back of large-scale investments in the energy and banking sectors.

According to a report from research firm, Rhodium Group, which tracks all acquisitions and investments by foreign companies in the United States valued at $1 million or higher, 2012 could be the richest year on record, eclipsing the previous record of $5.7 billion set in 2010.

Total Chinese foreign direct investment in the United States reached $3.6 billion in the first half of 2012 – also another Q1 record for China.

Major projects in the first six months included the $2.5 billion purchase of a one-third stake in five shale oil and gas fields across the US by China Petroleum and Sinopec; as well as the $140 million acquisition of an 80 percent stake of Bank of East Asia’s US operations by the Industrial & Commercial Bank of China.

According to Rhodium, other pending multi-billion dollar deals include Dalian Wanda’s $2.6 billion bid for movie theatre chain AMC, as well as Chinese aerospace manufacturer Superior Aviation’s $1.8 billion bid for aircraft maker Hawker Beechcraft.

Should the US authorities give their consent, the two deals alone would push the total Chinese FDI to beyond $8 billion this year.

Thilo Hanemann, research director with Rhodium, said:
In China, it’s becoming harder for companies to achieve economies of scale. The cost of labour, land, electricity and regulatory compliance has gone up. 
As a result of these changes, Hanemann says, Chinese companies have been forced to look for faster growth opportunities in developed economies such as the United States and Europe. 

Yet, there are both risks and benefits to the United States from increased Chinese investment, said Hanemann. 

The risks include national security and transparency concerns, he said, but added that he expects American regulators to push for a level playing field for local businesses. 

On a positive note, Hanemann said Chinese investments have created jobs and contributed to higher tax revenues for federal governments. 

An indirect benefit is that Chinese companies operating in the US are exposed to the US regulatory system. 
"In the past, if the Chinese company wasn't operating here, it wasn't scared of potential litigation," said Hanemann. "By having significant assets in the US, it positively influences their compliance." 
Courtesy Economy Watch(EconMatters author archive here

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters

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