2012 Marks Record-Breaking Year
China has been making some serious investments in America over the last year. This is not only great news for the eastern region, but also positive for the western superpower as it seeks to turn its financial troubles into a distant memory, and make strategic plans for future growth over the next five to ten years. In addition, China’s already attractive investment growth figures are expected to advance even further, possibly breaking the record set two years ago of $5.7bn. Indeed, according to research undertaken by the Rhodium Group, China’s Foreign Direct Investment (FDI) into America could total $8 billion+ this year, which is incredible given that in the past it has nowhere near reached this figure.
This news shouldn’t be all that surprising though. Given that Chinese businesses have been encountering substantial growth over the last few decades, the region’s market should be able to offer America various investment opportunities, benefitting both countries.
Benefits to East and West?
With these additional investments, it is hoped that China will benefit by gaining easier access to America’s markets, along with lower costs. Meanwhile America will gain additional access to top level technology and natural resources since China’s main investment industries are public infrastructure and high-end manufacturing. For America’s re-industrialization plans, it couldn’t be a more suitable match.
So at first glance, it looks like everyone is a winner. But, on deeper analysis, there are questions. It is clear that China benefits, substantially boosting its economy. But vis-à-vis perceptions as economic superpowers, the fact that China is making such headlines is indicative that while it is developing well, America is not. If an American businessman makes an investment in China, it’s no longer viewed as newsworthy like it was a decade ago; now everyone realizes that indeed, China is the place to make investments, which puts America’s vantage point somewhat lower on the totem pole. This was particularly apparent when Dalian Wanda from China bought AMC – the American movie chain – for $2.6bn.
There is even more good news for China back home. More jobs will be created for the Chinese and additional business opportunities will develop for its companies. As the country continues to develop, it will look for increased possibilities of making foreign investments. In the past, this has been somewhat tricky at times, with various non-business blockages, like in 2005 when China National Offshore Oil Corporation was unable to purchase Unocal. So politicians and lawmakers need to be in sync with what is ultimately best for all countries concerned, perhaps putting egos aside.
Indeed, all these issues have – and will continue to – hamper FDI. For example, in 2001, a mere 0.7 percent of FDI into America came from America, and China’s FDI in America accounted for a mere 2.6 percent of its total Outbound Direct Investment (ODI). Further, when looking at China’s investments into Europe, it was more than three times that of what it invested into America.
Given America’s already weakened and fluctuating fiscal situation, it would seem that the superpower would be doing everything possible to encourage Chinese investment, not put up blocks. But at the end of the day, when politics plays a part, it is tough for economists to rationalize with policymakers, irrespective of how beneficial doing so will be for everyone.