U.S.-China Investment Flows Bigger Than Thought – China Real Time Report – WSJ

Would politicians in the U.S. and China be stronger proponents of foreign investment from each other’s nations if the amounts were bigger?

A new study estimates foreign direct investment between the U.S. and China is already two to four times the amount shown by official statistics, and its authors hope the findings will encourage politicians to forge even deeper bilateral links. “We simply did not have a good joint basis for discussion,” said Thilo Hanemann, research director at New York-based Rhodium Group.

With funding by big U.S. businesses and trade groups, Rhodium counted $228 billion in 6,677 U.S. investments into China since 1990, plus 1,200 Chinese investments into the U.S. worth $64 billion. The figures are significantly higher than official numbers produced in each country.

Publication of Rhodium’s “Two-Way Street” comes as investment and trade flows face increasingly skeptical governments in both the U.S. and China. Proponents of open flows express anxiety that, as U.S. president, Donald Trump could favor more protectionism. New policies could mean less business for investment bankers and lawyers who do cross-border deals, plus slower trade and fewer jobs in local communities.

Cool winds were already blowing before Mr. Trump’s surprise election.

Rising trade barriers are blamed for anemic global commerce this year, while cross-border investment is under such threat that Group of 20 leaders in September endorsed guidelines designed to inspire confidence in it. This week, the U.S. Congress was advised by a longtime critic of Beijing, the U.S.-China Economic and Security Review Commission, of an “inherently high risk” in allowing state-run Chinese companies to make acquisitions in the U.S.

A Chinese Foreign Ministry spokesman declined to comment on the commission’s report in a regular briefing Thursday and said the U.S.-China economic relationship is mutually beneficial.

Rhodium argues that the benefits of FDI aren’t widely enough appreciated because the amounts have been underestimated. Its researchers aimed to track every business investment of $1 million or more between the world’s two largest economies over the past quarter century.The researchers found deep impacts throughout China and the U.S., including 1.6 million jobs in China directly resulting from U.S. FDI and U.S. 100,000 due to Chinese money.

The paths into each other’s nations differ, the study determined. Some 71% of U.S. investments into China were greenfield, or new, projects. U.S. companies, including Gap Inc. and International Paper, according to their executives who participated in a launch of the report, initially went to China because it was cheaper. Today they increasingly look at its consumer market. Meanwhile, U.S. business as a whole could do more if permitted into key sectors such as entertainment and energy.

Chinese companies have mostly bought businesses in the U.S. with activity that has been almost all in the past five years, the researchers found. Dealmaking has risen so quickly that China’s flows to the U.S. topped its intake from the U.S. in 2015, with activity increasingly driven by private companies, including financial investors such as Shanghai-based Fosun Group, which also took part in the launch event.

The business community’s near-term anxiety is the election of Mr. Trump, who campaigned on allegations the Sino-U.S. economic relationship has been anything but a two-way street.

Stephen Orlins, president of the National Committee on U.S. China Relations, which sponsored the Rhodium work, predicted the 45th president will adopt open investment policies, saying: “As a business person, he will understand that foreign investment creates jobs in the United States. Trade may be different.”

Source: U.S.-China Investment Flows Bigger Than Thought – China Real Time Report – WSJ

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