Chinese direct investments in the US to hit new high in 2016 after reaching US$15.7 billion last year

US$22 billion pending mergers and acquisitions, as well as more than US$10 billion ‘greenfield’ projects in the US pipeline for Chinese investors

PUBLISHED : Wednesday, 20 January, 2016, 4:42pm
UPDATED : Thursday, 21 January, 2016, 12:47pm

Chinese direct investments in the United States are poised to scale new heights in the next 12 months after reaching a record US$15.7 billion last year on the back of transactions in high-technology, services and consumer-oriented assets.

A report released on Wednesday in the US by research firm Rhodium Group said the pipeline of deals for Chinese investors in the world’s biggest economy was “at an all-time high” this year.

“We count more than US$22 billion worth of pending acquisitions, focused on information and communications technology, electronics, white goods, entertainment and financial services,” Rhodium analysts Thilo Hanemann and Cassie Gao said in the report.

They added that potential “greenfield” projects in the US by Chinese investors this year could hit more than US$10 billion.

Greenfield refers to a form of foreign direct investment in which a parent company starts a new venture in another country by building new facilities there.

The biggest pending Chinese technology-related acquisition in the US is the US$3.8 billion investment by Unisplendour Corp, a unit of state-backed Tsinghua Holdings, to obtain a 15 per cent equity stake in Western Digital, the world’s largest supplier of data storage devices. This deal is expected to close by the end of this quarter.

In terms of greenfield investment, Shandong Sun Paper Industry is expected to spend US$1.36 billion to build a new pulp mill in the southeastern state of Arkansas. Shanghai-listed Sun Paper plans to break ground on the new mill this year and start operations in 2018.

“Going forward, the biggest political downside risks for Chinese investment in the US are related to the political and economic environment in China,” Hanemann and Gao said.

“The volatility in China’s markets and continued downward pressure on the US dollar and Chinese yuan exchange [rate] have forced [mainland government] officials to further ratchet up capital controls to stop the massive outflow of capital.”

Another emerging risk the analysts pointed out is China’s anti-corruption crackdown, which could impact private mainland companies’ appetite for deals in the US and elsewhere.

Chinese conglomerate Fosun International last month withdrew its takeover bid for Euronext-listed private bank Kleinwort Benson in a deal that would have cost €500 million euros (US$547.29 million).

Fosun chairman Guo Guangchang, who went missing for four days in December to assist mainland authorities in corruption probes, confirmed that withdrawal through the company’s Luxembourg-based subsidiary Billion Eastgate.

Despite turbulence in their home market, Chinese investors announced a pair of blockbuster deals in the first two weeks of this year: Haier Group’s US$5.4 billion acquisition of General Electric’s appliance business and conglomerate Dalian Wanda’s US$3.5 billion investment in Hollywood film studio Legendary Entertainment.

Rhodium Group estimated that total Chinese direct investments in the US grew about 30 per cent to US$15.7 billion last year, up from US$12 billion in 2014.

There were 103 mergers and acquisitions deals worth around US$14 billion last year, compared with the previous year’s 92 transactions.

Chinese companies’ greenfield investments in the US last year totalled nearly US$1.8 billion, compared with US$1.3 billion in 2014.

Privately owned companies accounted for 84 per cent of total Chinese direct investments in the US last year, up from 19 per cent five years ago.