|Great Potential in China's Investment in the United States|
|----Speech by Zhao Weiping, Chinese Consul General to Chicago (April 27, 2013)|
Distinguished guests, Ladies and Gentlemen,
It is my great pleasure and privilege to be a speaker at the seminar hosted by the prestigious Booth School of Business, University of Chicago.
Today, my topic is "great potential in China's investment in the United States". What I am talking about is the non-financial investment.
China's outward direct investment (ODI) has a short history, but rising rapidly in the last decade.
In particular, the fast growth of China's ODI even continued after the world financial crisis in 2008, while the global Foreign Direct Investment (FDI) has significantly shrank.
In 2002, China's ODI flow was US$2.7 billion. By 2012, it has jumped to US $77.2 billion, 28 times bigger than ten years ago.
Now, China is the 13th largest ODI country in the world in terms of stock, totaling US $443.2 billion last year.
There had been very few individual cases of China's investment in the US before the beginning of this century.
China Ocean Shipping Corporation (COSCO) might be one of the earliest Chinese investors in the US, which filed its registration with US$500 in California in 1985.
Haier Group's refrigerator plant in South Carolina established at the turn of the century was one of the earliest large Chinese investments in the US with an amount of US$30 million.
China's ODI in the US has picked up since 2007.
According to Chinese statistics, China's ODI stock in the US increased from US $1.88 billion in 2007 to US $9.3 billion in 2012.
The US statistics shows that China's ODI stock in the US reached US $3.4 billion in 2007 and US $22.8 billion in 2012.
Though different, both statistics have shown a big increase in China's investment in the US over the last five years.
China's major investment projects in the US are as follows:
Lenovo acquired IBM personal computer division in 2005 with an amount of US $1.75 billion.
Tianjin Pipe Corp. has invested US$1 billion in Gregory, Texas for its first US production operation and is expected to move into the first phase of its new mill by this summer.
Shanghai Electric Group invested US $90 million in Goss Industries based in Illinois in 2010.
Shandong Nanshan Aluminum Co Ltd built an extrusion plant in 2011 with an amount of $161 million.
Dalian Wanda Group acquired AMC Entertainment in 2012 with an amount of $2.6 billion.
Wanxiang Group acquired A123 System with an amount of US $465 million not long ago.
Now, Chinese firms invested in at least 40 of 50 US states. In term of deal numbers in 2011, the top 10 recipient states are California, Texas, Michigan, New York, Illinois, North Carolina, Georgia, New Jersey, Washington and Ohio.
According to US statistics, China's investment in the US has created 27,000 jobs for the local people.
The growth of China's investment in the US as well as its overall ODI is the result of China's economic development.
The first decade of the 21st century has witnessed a big leap forward in China's economic development.
In the ten years between 2002 and 2012, China's GDP has achieved an annual growth rate of about 10% on average with China's per capita GDP increasing from $1000 to $6100.
And China has jumped to the second largest economy since 2010 while it was only the 6th largest economy back in 2002. Last year, China's GDP reached about US $8.2 trillion. China's foreign reserve reached US $3.44 trillion, almost the same size as that of Germany's GDP in 2012.
The overall strength of China's enterprises as well as their investment capabilities also have grown remarkably. 69 Chinese mainland companies entered the list of Fortune 500 in 2012, while there were only 9 in 2000.
Here, I want to emphasize that although China's investment in the US has been expanding fast, its total size is still very small, which does not match the status of China as the world's second largest economy as well as the second largest trading partner of the U.S.
Last year, the bilateral trade volume between China and US reached almost $500 billion, making up 12.5% and 13% of their respective total foreign trade volume.
However, in 2011, China's investment in the U.S. accounted for only 2.4% of China's overall ODI according to Chinese statistics, and only about 2% of the total foreign investment in US according to US statistics.
China lags far behind Japan, the third largest economy in the world, as well as even behind smaller economies such as Mexico, Brazil, Singapore and India.
It is not difficult to understand the above situation because China is a latecomer as a global investor.
In the meantime, it should be recognized that there are some negative factors which have caused serious problems on China's investment in the US.
The biggest concern on the Chinese side is that China's investment has been frequently politicized in the US, as evident in the political interference from the Capitol Hill and elsewhere in the review process of the US side.
Many major China's investment projects have been rejected by the US side on the ground of "national security concerns". However, the interpretation by the business community in China is very different. It is widely believed that the relevant decisions by the US side are mainly out of political considerations.
According to the statistics by the Heritage Foundation, the volume of blocked Chinese transactions in the U.S since 2005 is about the same as the volume of completed transactions.
Some of the major failure cases of China's investment in US are as follows:
In 2005, the Chinese oil company CNOOC was denied an acquisition bid for Unocal.
In 2009, Huawei and private equity firm Bain Capital were forced to withdraw their joint bid for acquiring network gear maker 3Com.
In 2009, Northwest Nonferrous International Investment Co. was forced to pull back its plans to acquire gold mining company Firstgold.
In 2010, Tangshan Caofeidian Investment Co Ltd had to withdraw its bid for Emcore, a provider of solar panel after CFIUS signaled national security concerns.
In 2011, Huawei backed away from its acquisition of US server technology company 3Leaf's assets at the recommendation of CFIUS.
The negative impacts of these failure cases are obvious. They have sent out unwelcoming messages to Chinese investors and made them believe in the high uncertainties of investing in the US.
However, there are also many favorable factors for further growth of China's investment in the US. This is where the potential comes from.
First, the capacity of China's ODI will be further strengthened along with the growth of China's economy.
At the 18th National Party Congress convened late last year, China has set up the grand goal of doubling both its GDP and per capita income by 2020 on the basis of 2010.
As announced by Chinese President XI Jinping at the recent Boao Forum for Asia, according to estimates, China's new ODI will reach $500 billion in the next 5 years.
As estimated by Rhodium Group, China's ODI stock would grow from its current US$ 400 billion to more than US$1 trillion by 2020.
Second, the need for Chinese enterprises to invest in the US will also grow in the years to come. The U.S. makes itself attractive to China's investors with the world's largest and most mature market, highest-level advanced technology and strongest R&D capacity. To invest in the US will add to Chinese companies' comparative advantages and enhance their competitiveness. Believe it or not, the US even enjoys the advantages of lower costs in electricity and land compared with China.
Last Thursday, I hosted a reception at the Consulate for thirty Chinese companies investing in my consular district. Many of them are happy with their business and plan to expand their investment in America.
As China's opening-up process further deepens, the Chinese government will certainly do more to encourage China's enterprises to invest abroad including the US.
Third, on the US side, there is also good news to the ears of Chinese investors.
As you all know, the US Government is pushing forward its initiative of "Select USA", part of its aim is to encourage more business investment in the US by foreign firms.
Obviously, there is great passion among the State and Municipal governments and leaders as well the business communities in the US for embracing China's investment. In the short period of the first four months this year, we have seen the visits to China by five US State Governors for the purpose of trade and economic cooperation. Up to now, at least 28 state governments have set up offices in China to promote bilateral trade and investment.
In addition, from a long-term perspective, the general situation of China-US relationship will continue to be favorable for the trade and economic cooperation between China and the U.S.
Chinese President Xi Jinping and US President Obama, through their recent phone conversation, have reaffirmed the commitments of our two countries to advancing the cooperative partnership based on mutual respect and mutual benefit. They also agreed to explore establishing a new-type major-country relationship between our two countries. We have many reasons to be optimistic about the prospect of China-US relations.
Looking to future, I believe that the development of China's investment in the U.S. will depend to a large extent on whether a more favorable climate will be created by the U.S. side.
First, the U.S. side should adopt a strategic vision in welcoming China's investment.
The trend for China to become a more important global investor will continue. And more Chinese investors will come to knock the door of America. They will create more jobs for America, provide more direct services to the American public and pay more taxes to various levels of governments.
More Chinese investment in the U.S will not only help rebalance the economic relationship between our two countries, but also will further strengthen the economic foundation for our bilateral relations. I believe more American friends will come to realize that China's investment in the US is not only good to China, but also good to America.
Second, the U.S. side should recognize the true commercial nature of China's investment and not politicize normal investment deals.
It is natural for countries to have certain kind of national security scrutiny on foreign investors. The important thing is to ensure a fair and transparent process and prevent from being disturbed by political interference.
There have been too many times here in the US when China's investment initiatives were debated on the Capitol Hill or in the major media. Under these circumstances, it is difficult to ensure independent and wise judgment by the relevant government agencies of the US side. Any positive change in this regard will give great boost to the confidence of China's investors in the US.
Of course, communication at various levels between the governments of our two countries should be strengthened to further promote mutual trust and to reduce suspicion as well as to provide more facilitations to the investor of both our countries.
In closing, I wish to quote a statement by President Xi Jinping earlier this month. He told a group of Chinese and foreign entrepreneurs that China will keep its door open to foreign investors, and also hopes that foreign countries will be more open to Chinese investors. Thank you.