Caixin
Nov 14, 2016 06:40 PM
ECONOMY

Recent Sino-U.S. Investment Far Greater Than Previously Believed, Report Says

The world's two largest economies have had deeper investment ties — even more than official data has indicated — in the past 25 years, according to a study released Monday.

The report, led by the National Committee on U.S.-China Relations and the Rhodium Group, found that U.S. investors had funneled $228 billion into China from 1990 to 2015 — a great deal more than the $75 billion assessment recorded by the U.S. Bureau of Economic Analysis.

For its part, China has completed outbound investment into the U.S. of more than $64 billion during the same period, according to the report, exceeding official Chinese data of $41 billion, the report said.

The higher figures are the result of a new transaction-based methodology applied by Rhodium researchers to make up for the shortcomings that official statistics have, which are "subject to significant distortions due to tax optimization and other shorter-term considerations," according to the study.

"The two-way volume of investment is far more advanced than it was just a few years ago, and so leaders — both in business and government — need to manage this interaction differently," the report said.

Chinese market entry into the U.S. has been dominated by acquisitions of existing businesses, while 71% of U.S. activity in China was largely in "greenfield projects," or those not constrained by prior work, including existing buildings and infrastructure. The majority of such projects have been undertaken by small and midsize companies.

The study suggested that the U.S. should "resist calls to limit openness" and "minimize the politicization of transactions."

The report comes just days after Donald Trump, who endorsed trade protectionism during his campaign, was elected U.S. president last week. Trump will become president on Jan. 20.

The slowdown in U.S. investment in China shows that policy makes a difference in money flows, according to the report's authors. U.S. investment in China has declined since 2012, not just due to China economic slowdown, but also due to saturation in some industries and Beijing's restrictions on foreign investors in most industries, including growth industries and services.

Rhodium researchers called for China to "accelerate the announced transition to a new foreign direct investment (FDI) regime that stops guiding foreign investment decisions."

Meanwhile, Chinese investors' footprint overseas has expanded rapidly over the past decade, the report showed. Now investment is increasingly driven by the private sector, including private equity firms, venture capitalists and other financial investors.

While the scale of American investment in China is still about four times larger than China's presence in the U.S., the tide has turned in recent years. Chinese FDI into the U.S. has outweighed U.S. FDI into China since 2015.

Contact reporter Coco Feng (renkefeng@caixin.com); editor Ken Howe (kennethhowe@caixin.com)

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