Chinese Investors Shopping for American Firms
Look for Chinese firms to ramp up their investment in U.S. corporations over the next five years. Last year marked a turning point. Spending by Chinese investors to acquire U.S. corporations or buy shares in U.S. firms hit a record high in 2012, and this year it will likely match or exceed that total.
And it isn't only the volume of Chinese investment that's increasing. The Chinese also are broadening their purchases beyond just energy and mineral companies, snapping up firms in a wide array of businesses, from financial corporations to entertainment firms, as well as luxury real estate. And, to avoid a political backlash in the U.S., they're going after smaller companies rather than big, well-known players.
“Get ready — over the next five to eight years we're going to see a big ramping-up of investment from China,” says Ted Moran, who tracks foreign investment at the Georgetown University School of Foreign Service and is completing a study of Chinese investment in the U.S. for the Peterson Institute for International Economics.
What's behind the new buying spree? Several factors. The U.S. economy is picking up, while China's has slowed. Investors there are pessimistic about a worrisome property price bubble. And Beijing's restrictions make it difficult for Chinese firms to expand.
On the other hand, investing in the U.S. is easier, the higher yuan makes U.S. assets less expensive, and the Chinese are learning how to navigate in the U.S. system. Plus, acquiring a stake in U.S. firms gives the Chinese a foothold in the U.S. market and access to American R&D, design and marketing skills, says Thilo Hanemann of the Rhodium Group of New York, which tracks global investment.
Moreover, state governors and legislators in the U.S. are mounting serious efforts to woo Chinese investors in hopes that the acquisitions and new money will create more jobs for their constituents. Officials from Texas, New Jersey, Massachusetts and California, among other states, have all made promotional trips to China in recent months.
What Chinese investment actually brings to American firms varies widely. Most such deals mean an infusion of capital, helping the U.S. company stave off financial problems. Contrary to some fears, the Chinese buyers haven't cut jobs or wages after taking over U.S. companies, but so far they haven't increased employment much, either.
The biggest impediment to expansion of Chinese investment in the U.S. is suspicion that their acquisitions here will threaten U.S. national security, says Derek Scissors, who tracks Chinese investment for the Heritage Foundation, a conservative think tank in Washington. U.S. policy on Chinese investments is still evolving.
Although Chinese investors include some Bejing millionaires and private companies, most of the money comes from China's huge state-owned enterprises, or SOEs, which are heavily subsidized by Beijing. That raises a fear that the SOEs, as owners or stakeholders in U.S. firms, will effectively be agents of the Beijing government.