With an estimated population of 1.4 billion people in 2015, China has the largest population in the world, and with that, it has a vast pool of labor. Ever since the Chinese government let in foreign companies, the mainland attracted investment from American companies as well as from companies around the world. Foreign direct investment (FDI) in China has been on the rise with a growth rate of 7.9 percent, year on year, with a total of $114 billion invested by foreign companies. However, it is not only foreign companies investing in China, but companies based in China are also expanding worldwide.
Research conducted by Rhodium Group found that Chinese companies invested $9 billion in the U.S. in the first three quarters of 2015 with pending transactions of more than $8 billion. Over 85,000 people in the U.S. are currently employed by Chinese companies and their affiliates. If we take a look at Chinese investment from 2012–2014, in 2012 total Chinese investment in the U.S. was a mere $6.5 billion. This amount more than doubled in 2013 with total investments worth $14 billion and reduced to $12 billion in 2014.
Chinese companies have gained international attention by acquiring well-known companies in the U.S. The biggest possible acquisition of an American company by a Chinese firm to-date came in late 2015 when three Chinese hotel companies were in the bid to acquire Starwoods Hotels & Resorts Worldwide. However, Marriot International Inc. ended up acquiring the company for $12.2 billion dollars in November. This displays the growing interest shown by Chinese companies to enter the U.S. market. Companies like Lenovo, Wanxiang Group, and Ninebot Limited have made headlines with acquisitions of famous American brands. Lenovo acquired IBM’s x86 server business in 2014. Wanxiang Group created waves in the electronic vehicles market after the acquisition of Fisker Automotive, one of the companies competing against Tesla. Ninebot Limited acquired Segway Inc. to become one of the top manufacturers of short distance transportation products.
Companies within different industry sectors are investing in America. And it’s not only large but comparatively smaller companies that are investing too, such as Fuling Global Inc. a plastic furniture maker, Humanwell Healthcare Group, a drug company, and Innovative Manufacturing, Inc., a plastics company. Fuling Global Inc. completed its IPO in the NASDAQ capital market, raising $20 million. The company plans to expand in the U.S. Humanwell Healthcare Group invested $50 million for R&D on its subsidiary based in New Jersey. Innovative Manufacturing, Inc. announced an investment of $4.7 million for expansion of its facility creating 50 jobs in Tennessee.
Chinese investment in the U.S. is growing and economic developers should look at the opportunities these projects hold for creating employment and bringing prosperity to the area. According to data from Conway Data, there have been a total of 79 projects, with 13 expansion projects and 66 new projects announced by Chinese companies from 2009-2014. There is an upward trend seen in both the new and expansion projects. The highest numbers of projects were announced in 2014 with 9 expansion and 25 new projects making a total of 34 projects that year.
Figure 1: Projects Announced by Chinese Companies from 2009-2014
Source: Conway Data, 2014
During the period of 2009-2014, projects have been announced in 24 states, of which North Carolina takes the top stop with 14 projects followed by Virginia with 12 projects and Illinois with seven projects.
Figure 2: Chinese Investment Projects Across the U.S., 2009-2014
Source: Conway Data, 2014
Some companies expand for growth whereas some expand for personal goals. In a Forbes article from 2014, Joseph Quinlan, a chief market strategist for the U.S. Trust’s wealth management division in New York stated four trends driving China’s future growth. One of the trends he mentioned was the need for China to shift capital out of the country. In the past, China had concentrated on limiting investments abroad and instead targeted FDI into their country. Presently, however, there is a vast amount of international reserves in China and an abundance of wealth that China’s underdeveloped financial system cannot absorb. Quinlan says that this created a need to shift capital outbound globally. Chinese investors are especially targeting real estate markets, and the U.S. has become a primary target for investment.
The Chinese stock market crash of 2015 caused worry about Chinese investment abroad. This may hamper growth in some industry sectors in the U.S; however, some industries, like automotive parts manufacturing, may not be affected. Chinese companies like Yanfeng Automotive Trim Systems Co. supplies parts to different companies around the U.S, and strong growth is predicted. As far as the Chinese stock market crash’s effect on investment in the U.S, only time will tell. As a whole, the level of investment may decline, but there will be new projects.
Whichever the sectors and whatever the reasons may be, Chinese investment brings a field of opportunity for economic developers. Economic development agencies should develop strategies to attract Chinese investment in order to gain long-term benefits for the community.