China's investment in US is set for a record year

HPQ, DELL, CSCO, JPNR

Chinese investment in the United States is expected to hit a record high this year, thanks largely to big-ticket items, according to a report from the Rhodium Group, a New York-based organization that analyzes global trends.

Chinese foreign direct investment, or outbound FDI, in the US reached $3.6-B in 1-H of this year, and covered 33 projects, the report said.

Of these, 12 were acquisitions and 21 involved Green-field investments, the construction of new facilities.

The 1st 6 months of Y 2012 saw a record investment for any half year from China.

Thilo Hanemann, research director for Rhodium, which monitors Chinese FDI in the US, said that the large-scale investments could make Y 2012 a record year, beating the $5.7-B record set in Y 2010.

Ge Shunqi, deputy head of the Institute of International Economics at Nankai University in Tianjin, told China Daily that with the US economy trying to get out of the doldrums, investment from China is particularly welcomed.

"Chinese investment in the US offers great potential and will help stabilize growth in the next decade."

Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics, believed that a new era was dawning. "After decades of growth, Chinese enterprises are capable of entering the developed US market and China's large foreign reserves will also be of benefit."

Ge agreed and identified key investment sectors. "Investment in the US will bring differing returns to Chinese enterprises.

"Some enterprises will enjoy easier access to the US market and lower costs while others will acquire natural resources as well as high-end technology resources."

Ge added that "high-end manufacturing and public infrastructure will be the key areas for Chinese investment in the US" as the US embarks on reindustrialization.

Major projects targeted by Chinese FDI this year include the $2.5-B purchase by China Petroleum and Chemical Corp, or Sinopec, of a one-third stake in five shale oil and gas fields across the US from Ohio-based Devon Energy.

Copper-tube producer Golden Dragon also broke ground on a $100-M manufacturing facility in Wilcox County, Alabama.

The banking sector also saw movement with the acquisition by Industrial & Commercial Bank of China of 80% of Bank of East Asia's US operations for $140-M.

Two headline-making investments were not included in the report: Dalian Wanda Group's $2.6 billion acquisition of US movie-theater operator AMC Entertainment Holdings and Superior Aviation Beijing Co's $1.8-B bid for aerospace company Hawker Beechcraft in early July.

While Super Aviation is still awaiting approval from US authorities (Hawker remains in federal bankruptcy proceedings in New York), Wanda and AMC announced Wednesday that they received approval from the Committee on Foreign Investment in the US. That, along with clearances from Chinese and other US authorities, mean the deal should close as planned by the end of August, according to Wanda.

If the Super Aviation deal is also approved, these investments would push total Chinese FDI in the US beyond $8-B this year and that does not include projects in the pipeline.

While Chinese investors continue to pour money into a range of industries, a few sectors specified in the Rhodium report, including oil and gas, which, led by the Sinopec-Devon deal, accounted for the bulk of Chinese FDI in the US.

"The US has rich natural and technological resources. If it's fully open to foreign investors, Chinese investment will see significant growth in these two fields, especially in acquiring technology," Ge said.

Trailing oil and gas were aerospace, banking, metals processing and plastics. Alternative and renewable energy recorded the highest number of deals, although these investments were relatively small.

Besides big-ticket projects, Rhodium Group pointed to recent positive developments in investment policy, both in the US and China. It cited US President Barack Obama's order to increase visa-issuing capacity in China by up to 40% in Y 2012 and official statements welcoming Chinese participation in US infrastructure development during the May US-China Strategic and Economic Dialogue.

While the report said the welcoming tone is a first step, it cautioned that the main challenge businesses will face in pursuing infrastructure projects will be finding the logistical and legal means to participate more directly without sparking national security concerns.

Rhodium's Hanemann said there is deep concern in the US over Chinese FDI in the telecom sector, and recent incidents involving ZTE mean such sentiment won't fade anytime soon.

The company was recently accused of selling equipment to Iran from US companies Hewlett-Packard Co (NYSE:HPQ), Dell Inc (NASDAQ:DELL) Cisco Systems Inc (NASDAQ:CSCO) and Juniper Networks Inc (NASDAQ:JPNR) in violation of US export controls.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.