Analysis of Chinese Investments in the U.S. Economy

U.S. & Chinese Flags

The U.S.-China Economic and Security Review Commission recently released a report, “An Analysis of Chinese Investments in the U.S. Economy,” which investigates “sectoral and regional patterns of Chinese foreign direct investment (FDI), economic benefits for the U.S. economy, and U.S. regulation and oversight.” The report states that Chinese investment in the United States is rapidly increasing due to a combination of factors, including:

  • The decision of the Chinese government to diversify its foreign currency assets into hard assets
  • Modification of Chinese policy guidance toward foreign direct investment (FDI)
  • The attempt by U.S. state governments, as well as the federal government, to attract Chinese investments in the hope of creating jobs and improving local economies
  • Chinese investments are being drawn to the U.S. by the availability of financially weak firms
  • Some firms already competitive with U.S. producers are investing to enhance their U.S. market shares or in response to unfair trade practices, such as subsidies

This increase in investments in countries like the United States will likely continue growing in the years to come. “As an outward investor, China has come a long way since 1978, the year marking the start of China’s historic economic reforms. Foreign direct investment (FDI) by Chinese firms, at least the values presented in official statistics, was zero that year, and every other year back to 1949, when the People’s Republic of China was founded. Statistics indicate that in 1984, only a single OECD [Organization for Economic Cooperation and Development] country, Germany, recorded any FDI from China. Three decades later, outward direct investment (ODI) from China is booming. Chinese ODI during 2008-2010 exceeded its ODI during the previous quarter century by more than 70 percent. According to UN statistics, China was the largest developing country investor and the fifth largest investor in the world in 2010.”

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