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Chinese direct investment in US to top US$10 billion for third year in a row

PUBLISHED : Friday, 13 November, 2015, 11:48am
UPDATED : Friday, 13 November, 2015, 12:06pm

Total Chinese foreign direct investments in the United States are on pace to exceed US$10 billion for the third consecutive year, despite the recent stock market crash on the mainland.

Investment activity by Chinese companies in the US picked up again after that crisis as they spent a combined US$3 billion on 46 transactions in the third quarter, according to a report published on Thursday by research firm Rhodium Group.

There were 26 mergers and acquisition deals totalling US$2.5 billion made by Chinese companies in the three months ended September 30, the report said.

The biggest transactions completed last quarter were Dalian Wanda Group’s acquisition of the World Triathlon Corporation (WTC) for US$650 million, Avic Automotive Systems and BHR’s purchase of Henniges Automotive for US$600 million, and Fosun International’s US$433-million takeover of Meadowbrook Insurance.

“With investments of more than US$9 billion in the first three quarters and more than US$8 billion of pending transactions, total investment will likely again exceed US$10 billion in 2015,” Rhodium analysts Thilo Hanemann and Cassie Gao said in the report.

Total Chinese foreign direct investments in the US last year reached nearly US$12 billion on a record-high 92 deals. In 2013, total investments hit an all-time high of US$14 billion on 82 deals.

“Investments by [Chinese] private-sector firms continue to boom as they are eyeing technology, brands and consumer-related assets. Private firms account for 78 per cent of total investment so far this year,” Hanemann and Gao said.

They pointed out that Chinese investments remained sharply focused on the US automotive, entertainment, insurance, and information and communications technology industries.

So-called greenfield investments by Chinese companies reached US$454 million in the third quarter on the back of large US projects of Shandong Tranlin Paper Company, rail-locomotive and rolling stock manufacturer CRRC Corp, and Shandong Yuhuang Chemical.

A greenfield investment is a form of foreign direct investment, in which a parent company starts a new venture in a foreign country by building new facilities there.

China’s offshore investments rebounded from the stock market crash after mainland policymakers and regulators implemented measures to reduce pressure on the yuan and curb channels for speculative capital flows.

“While the government may tweak existing rules to take off pressure on the currency, the likelihood of changing course on outward foreign direct investment remains small in our view,” the Rhodium analysts said.

The US$600 million acquisition of Henniges by state-owned Avic Auto, a subsidiary of the Aviation Industry Corporation of China, and Sino-US investment firm BHR marked the biggest Chinese investment in US automotive manufacturing assets to date.

Henniges is a leading supplier for the global automotive market of so-called dynamic sealing and anti-vibration solutions that keep vehicles quiet and dry.

According to Rhodium, Chinese companies are also ramping up their investments in the US electric vehicle market through greenfield investments.

Wanxiang subsidiary Fisker Automotive recently signed a lease for a new manufacturing facility in California in an attempt to compete directly with Tesla in “Made in the US” high-end electric cars.

That will be the second Chinese electric vehicle manufacturing facility in California, following a bus assembly facility opened by Shenzhen-based BYD last year.

State-owned Beijing Automobile Industry Holding, which owns a stake in US electric car maker Atieva, also established a new research and development centre in California’s Silicon Valley last quarter.

Wanda Group’s acquisition of WTC, which operates the Ironman competitions, represents the first significant Chinese investment in the US sports industry and made the mainland firm one of the largest sports operating companies in the world.

It followed Wanda’s investments in Swiss marketing giant Infront Sports & Media and Spanish football club Atletico Madrid the past year.

“At present, almost all the top sports events in the world are controlled by European and American companies. Acquisitions are the only way for most companies to scale up efficiently,” Wanda Group chairman Wang Jianlin said in August. “By acquiring World Triathlon Corporation, we will be able to have a world-class sports brand of our own.”

Other Chinese ventures into sports entertainment last quarter included Ourgame International’s acquisition of the World Poker Tour and Zhejiang Geely Holding’s purchase of Miller Motorsports Park.

The biggest pending Chinese deals in the US are in the information and communications technology sector, including Tsinghua Holdings-backed Unisplendour Corp’s US$3.78 billion investment in computer data storage maker Western Digital and Beijing-based private equity firm Hua Capital Management’s US$1.9 bid to buy US camera sensor maker OmniVision Technologies.

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