Going Global

China direct investment in the US set to top US$20b for the first time this year

PUBLISHED : Sunday, 24 July, 2016, 5:51pm
UPDATED : Monday, 25 July, 2016, 11:20am

The strong appetite of private mainland companies for American assets has put total Chinese foreign direct investments in the United States on pace to breach the US$20 billion mark for the first time this year.

Chinese outbound investments to the US surged to a record US$18.4 billion in the first six months of this year, driven by strategic corporate acquisitions of consumer goods-related, entertainment and information technology assets.

That was almost triple the US$6.4 billion of Chinese foreign direct investments in the US in the first half of last year, and more than the total US$15.3 billion made last year, according to a report released over the weekend by research firm Rhodium Group.

Total Chinese outbound investments in the US have exceeded US$10 billion for three consecutive years.

While certain Western media reports earlier this year argued that the recent jump in Chinese outbound foreign direct investments largely represented capital flight due to foreign exchange volatility and the mainland’s lingering economic slowdown, Rhodium analysts Thilo Hanemann and Cassie Gao said the majority of US deals in the first half were vital business transactions.

“More than 80 per cent of all Chinese foreign direct investments in the US in the first half of this year can be characterised as strategic investments — real economy firms investing in their core areas of business,” the analysts said.

Those included the US$5.6 billion purchase of GE Appliances last month by Shanghai-listed Qingdao Haier, a subsidiary of global consumer electronics and home appliances giant Haier Group.

Qingdao Haier chairman Liang Haishan said in January, when the merger agreement was announced, that the mainland company and GE Appliances “are highly complementary businesses, particularly in the areas of brand, market, product innovation, and supply chain and quality management”.

Other major completed transactions in the first half were the US$3.5 billion takeover of US movie studio Legendary Entertainment by conglomerate Dalian Wanda Group, the world’s biggest private property developer and cinema chain operator, as well as the US$1.9 billion acquisition of digital-imaging systems supplier OmniVision Technologies by a Chinese consortium composed of Hua Capital Management, Citic Capital Holdings and GoldStone Investment.

The Rhodium analysts said “financial investments — those made primarily for financial returns — amounted to US$3.5 billion” of total Chinese outbound investments in the US in the first half.

Most of those were large transactions for commercial property assets in major US coastal cities, including the US$1.65 billion acquisition of New York office tower 1285 Avenue of the Americas in Manhattan by China Life Insurance and US developer RXR Realty.

Rhodium estimates showed that there were 55 completed mergers and acquisition deals by Chinese companies in the US in the first half, which represented a new high from 53 in the same period last year.

At the end of June, the value of announced but not yet completed Chinese investments in the US swelled to US$33 billion.

Pending mergers and acquisition transactions add up to more than US$23 billion, including the US$6 billion cash purchase of hi-tech products distributor Ingram Micro by Tianjin Tianhai Investment, which is controlled by Chinese aviation and logistics conglomerate HNA Group.

The Ingram Micro deal is under review by the Committee on Foreign Investments in the United States, an inter-agency body that assesses the national security implications of transactions that could result in foreign control of any US business.