Study: US-China investment ties are bigger and deeper than anyone thought

PUBLISHED : Thursday, 17 November, 2016, 4:28am
UPDATED : Thursday, 17 November, 2016, 4:28am

Foreign direct investment flowing both ways between the US and China may be two to four times greater than shown by data from both governments.

That’s according to a Rhodium Group analysis of deals from 1990 to 2015 released in a joint report with the National Committee on US-China Relations.

Nearly 6,700 US investments in China over that quarter century have a combined value of US$228 billion, Rhodium found, far beyond the $75 billion US Department of Commerce estimate or the $70 billion from China’s Ministry of Commerce.

China’s 1,200 transactions over those years come to a combined value of $64 billion, eclipsing Mofcom’s $41 billion tally and the $15 billion to $21 billion range from the Commerce Department.

For the first time, Chinese companies invested more in the US last year than American companies in China, underscoring the evolution of the world’s two largest economies.

Economic integration “is much greater than official statistics suggest,” said Thilo Hanemann, an economist at Rhodium who manages the consulting firm’s work on global trade and investment and co-wrote the report. “That means that the costs on both sides from protectionist frictions are much higher than commonly assumed.”

Such links may be more crucial than ever after President-elect Donald Trump’s surprise win. Chinese President Xi Jinping told Trump in their first conversation this week that cooperation was the only correct choice for their ties.

American companies employ more than 1.6 million workers in China, while that country’s investment presence provides more than 100,000 jobs in the US, and the benefits are spread across more than 90 per cent of US states and Chinese provinces, according to Rhodium.

“The local benefits have been enormous,” the New York-based organisations wrote in their joint report. “These links also facilitate people-to-people relationships to a greater extent than trade and tourism.”

More than 1,300 American companies have major operations in China, with 430 of those investing over $50 million and 56 more than $1 billion, Rhodium concluded. US firms are eager to engage Chinese consumers and compete in growth sectors such as services, health care, and research and development, it said.

While some Americans want reciprocity requirements on Chinese FDI, and some Chinese complain about the lack of American openness, “policy makers are well advised to consider how much further along the relationship is than official data suggests,” the report said.

“Doing so argues for upgrading the policy framework presently used to manage related opportunities and concerns,” the organisations concluded. “Upgrading US-China FDI policy is not just a noble long-term goal but a present necessity.”