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Chinese investment in US real estate included the US$1.95 billion sale of the Waldorf Astoria hotel in New York to Anbang Insurance Group in October 2014. Photo: AP

China's US M&A surge won't fix economic imbalance, says USCC

Congressional commission says Beijing has not afforded a reciprocal level of market access to US investors in key mainland industry sectors

A surge in foreign investment from China into the US is insufficient to rebalance the economic relationship between the two countries, with Beijing still unwilling to offer reciprocal market access to American investors, a Congressional commission says in a new report.

"Between 2011 and 2013, the value of China's mergers and acquisitions (M&A) in the US exceeded the value of US M&A deals in China. While it is too early to call this a permanent turning point, Chinese companies are poised to deepen their presence in the US," said a report by the US-China Economic and Security Review Commission (USCC).

Last year, the US trade deficit with China increased by 7.5 per cent year-on-year to a record US$342.6 billion, according to official US data.

In sectors such as automotive manufacturing, agriculture, and services, China has not afforded a reciprocal level of market access to US investors, said the USCC, which advises US Congress on Sino-US relations. "US companies are finding it difficult to access China's consumer class and services sector."

Of the US$40 billion China has invested in the US since the start of the 21st century, more than half has entered in the last two years, USCC noted.

So far this year there were four Chinese M&As in the US with a total value of US$224 million, while last year saw 50 Chinese deals in the US totalling US$11.59 billion, according to Mergermarket, which tracks M&A activity.

In 2012 and 2013 Chinese investors accounted for the most notices filed with the Committee on Foreign Investment in the United States (CFIUS), a US government body that screens foreign investments for national security risks, at 23 and 21 notices respectively, according to a recent CFIUS report. Acquisitions in the US by Chinese investors accounted for the largest share of notices filed with CFIUS from 2011 to 2013 at 17 per cent or 54 notices, up 12 per cent from the previous three-year period.

"The national security reviews of CFIUS have soured many Chinese investors on the US market," wrote David Dollar in a Brookings Institute report. In 2012, China accounted for 4 per cent of foreign direct investment into the US, but 20 per cent of CFIUS cases, he said.

In 2014, were it not for computer firm Lenovo's US$2.95 billion acquisition of Motorola Mobility, property would have been the leading sector of Chinese direct investment into the US, said USCC. "The real estate bonanza constitutes a global trend. Chinese outbound investment in this sector increased 200-fold between 2008 and June 2014."

Chinese investment in US real estate included the US$1.95 billion sale of the Waldorf Astoria hotel in New York to Anbang Insurance Group in October 2014 and Bank of China's planned US$600 million purchase of the 7 Bryant Park tower in New York.

Investing in the US to circumvent trade barriers is becoming a pattern among Chinese manufacturers, USCC noted.

This article appeared in the South China Morning Post print edition as: China's U.S. M&A surge won't fix imbalance
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