U.S. Continues to Draw Chinese Investment
Economic and Political Changes in China Drive Trend
The potent storm of economic and political changes that rocked Chinese markets in early 2016 will continue to drive an unprecedented volume of Chinese capital overseas, especially to the U.S., according to O’Melveny & Myers’s 2016 Foreign Direct Investment Report.
“We’re poised for a significant increase of Chinese investment in the U.S for two reasons,” said Larry Sussman, managing partner of O’Melveny’s Beijing office.
“On the one hand, the Chinese rightly see the U.S. and its growth potential as an appealing investment,” said Sussman. “On the other hand, Chinese economic growth is slowing, its markets are increasingly competitive and its government has made efforts to promote freer movement of capital.”
In fact, nearly half of the investors surveyed viewed the U.S. as the world’s most attractive market for investment, citing the potential for growth as its strongest attribute. Yet while 38 percent of respondents perceived the U.S.’s regulatory regime as an attractive attribute, 48 percent viewed it as the greatest barrier to investment.
That seeming contradiction actually paints an accurate portrait of the U.S. investment environment, according to Steve Olson, Los Angeles O’Melveny partner and former Executive Director of SelectUSA, the U.S. government program that facilitates foreign direct investment.
“The very attributes that make the United States the most attractive destination for investment in the world can also present challenges to investors,” Olson said. “We are the largest fully developed consumer market in the world, but a highly competitive market.”
The survey found that nearly half of the investors surveyed viewed the U.S. as the world’s most attractive market for investment, while nearly two-thirds ranked it in their top 10 foreign markets.
The U.S., he said, is “the most open economy in the world, but certain foreign investments will be reviewed for national security implications.”
While “blessed with an effective and predictable legal system, but businesses in the U.S. face a high rate of litigation,” said Olson, adding that, “though seen by some as an attractive factor, some respondents cited U.S. laws and regulations as the top reason for the greatest barrier to U.S. investment.”
The report also depicts Chinese investors’ newfound desire to pursue higher returns through diversified investments. While 66 percent of respondents said they were targeting both publicly and privately held companies, these companies span a wide range of industries, led by healthcare and technology.
The remaining respondents’ targets were evenly spread across real estate, land resources, infrastructure and alternative investments.
As Chinese investors, seeking to diversify amid a slowing domestic economy, send more investment capital into the U.S., “the relationship between the two countries will undoubtedly become more complicated,” the survey concluded with “results that reflect many of the nuances of that relationship, but also demonstrate Chinese investors’ sanguine perspective on American politics.”
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