James Wen, an economist at Trinity College in Hartford, Connecticut, says the recent push by private enterprises also reflects tougher conditions in China, where the administration favors mega state-owned enterprises. At the height of the financial crisis in 2008 and 2009, the Chinese government allocated a lion's share of its $586 billion stimulus money to local governments and state enterprises, offering them generous tax breaks and preferred access to land and state bank loans. Private companies face discrimination and unfair competition from state enterprises.
And so they looked elsewhere. Liu Junhai, an expert on overseas investment at the Beijing-based Renmin University, says most private companies in China put the U.S. as their top destination because of its "mature and transparent capital market, independent and comprehensive legal systems, advanced technology and high-quality workers." Recent successes by companies like Lenovo, which purchased IBM's PC division, and SANY, a large Chinese concrete machinery manufacturer that opened up a plant in Georgia, have reinforced the perception.
Culture clash?
China's ODI in the U.S. has increased from $1.2 billion in 2008 to $6.5 billion in 2011. In California alone, Chinese companies have recently purchased the Marriott Hotel in downtown Los Angeles, the Sheraton Universal Hotel in Universal City, and the Balboa Bay Club & Resort and the Newport Beach Country Club in Newport Beach. Meanwhile, a Chinese investor has acquired the Riverside, California-based MVP RV to export recreational vehicles to China.
Despite these reported or under-the-radar investments, the amount is still relatively small compared to China's overall ODI. Investment in the U.S. makes up just 3% to 4% of China's total ODI activities. Nearly 90% still goes to projects in Asia, South America and Africa.
That may be because it's not always easy. While the Chinese government's cumbersome approval and review process has restricted the volume of investment in the U.S, the recent "regulatory scares" in the U.S. have not helped either, says Liu. In 2011, the Committee on Foreign Investment in the United States cited "national security" concerns when it blocked several major acquisitions by Chinese state-run enterprises Huawei Technologies, the world's second-largest supplier of mobile telecom infrastructure equipment, the Chinese Anshan Iron and Steel Group and China's aviation giant General Aircraft. "The seemingly discriminatory actions have deterred companies, both in the public and private sectors," adds Liu.
Joe Zhang, a New York-based clothing manufacturer from China, who started his business in the U.S. in the late 1980s, believes private enterprises will have a relatively easier time with regulators. "The scope of private investment is smaller, and their targets are limited to industries such as clothing, automobiles, commercial and residential real estate, finance and home electronics, none of which is likely to be blocked by Congress," he says.
