Putting Americans back to work is regarded as a key to America’s economic recovery, especially given the high unemployment rate of 7.9 percent at the end of October.
Much has been done to create new jobs, with America’s private sector generating 5.4 million positions over the past 32 months. Additionally, the U.S. government has enacted legislation, including the Middle Class Tax Relief & Job Creation Act of 2012 and the Small Business Jobs Act, to get the U.S. economy back on track.
Furthermore, “the recent surge in Chinese investment is yielding employment benefits. We estimate that majority-owned U.S. affiliates of Chinese companies directly support around 27,000 jobs in the United States today, up from fewer than 10,000 five years ago,” a Sept. 27 article by the Rhodium Group suggests.
Overall, Chinese investments in the United States are miniscule and less than 1 percent of the 6 million jobs that subsidiaries of foreign firms have created in the United States.
In the long run, China may create between 200,000 and 400,000 jobs in the United States within the coming eight years, an October 30 East Asia Forum report suggests.
According to the East Asia Forum report, “Chinese firms come to the United States for the same commercial reasons as other foreign investors: its large consumer market, its good business environment, its creative and diverse workforce, its innovative and experienced firms and its strong global brands.”
Suspicious of Motives
“As newcomers to the United States, Chinese firms are raising suspicions as to their motives and behavior, just as Japanese firms did in the 1980s. … One of the most important questions is how Chinese investment affects U.S. employment,” the Rhodium Group article states.
According to the Rhodium article, suspicion of China’s motives centers around the question: “Are Chinese firms incentivized to move jobs back to China because of patriotic doctrine, as a quid-pro-quo for state support to go abroad, or industrial policy designs?”
The article goes on to say that Chinese firms’ investments in the United States are not sufficient for a well-grounded statistical analysis that could provide a valuable answer about companies moving jobs to China.
However, a preliminary analysis by the Rhodium Group showed that on average, Chinese-owned U.S. firms remained in the United States, and equipment wasn’t moved to China. On the contrary, the Chinese buyers improved the wherewithal of the U.S. company, saved a number of firms from filing for bankruptcy, and kept the firms from laying off hundreds of employees.
“We see no evidence of ‘asset stripping’ behavior and find that most Chinese parent firms have maintained or added staff after acquiring companies in the United States,” the Rhodium Group article states.
Chinese Investment in U.S. on the Rise
“Once hardly noticeable, Chinese investments in U.S. companies are now rising sharply. Cumulative Chinese investments in U.S. companies remain modest compared to those of other major countries,” according to the latest U.S.-China Economic and Security Review Commission report.
Given that the financial wherewithal of a number of U.S. firms is at stake, Chinese firms are investing in many firms that provide them with technology they couldn’t get otherwise.
According to the Commission, the Chinese regime has a two-fold objective, which is procuring energy and mineral resources worldwide, as well as “advanced technologies in industries where China wishes to leapfrog existing competitors.”
Investments in 2012 include the purchase of movie theater chain AMC in September for $2.6 billion by Dalian Wanda Group Co. Ltd., a Chinese conglomerate that invests in the commercial real estate sector, department stores, tourism, hotels, and entertainment. This is the largest Chinese acquisition in the United States so far, according to a mid-October article by the Rhodium Group.
“The Wanda-AMC acquisition illustrates how providers of higher value-added services outside of trade facilitation and manufacturing-related functions have come into the focus of Chinese investors,” the October Rhodium Group article suggests.
American International Group Inc. (AIG) announced on Dec. 7 that it is in negotiations with a group of investors, which includes New China Trust Co. Ltd., New China Life Insurance Co. Ltd., P3 Investments Ltd., and China Aviation Industrial Fund, to divest 90 percent of its International Lease Finance Corp. (ILFC).
“AIG has consistently stated that ILFC is a non-core asset. Any possible transaction involving ILFC would be subject to required regulatory approvals, including those in the U.S. and China, and customary closing conditions,” according to the AIG press release.
Investing in California
“The Golden State has the potential to attract between $10 billion and $60 billion of Chinese direct investment by 2020. Those flows would bolster employment, feed the tax base, generate exports, and bring positive spillovers of know-how and relationships,” an October report by the Asia Society states.
The Asia Society report argues that California would allow China access to the entire United States for a number of reasons, most prominently as it is the state with the most high-tech industries.
“California is at the forefront of China’s beginning investment boom in the United States. It is by far the number-one destination for Chinese investment, based on the total number of deals,” accounting for 156 transactions between 2000 and 2011, according to the Asia Society report.
As the front-runner, California landed 29 percent of all Chinese direct investments between 2000 and 2011, followed by 8 percent in New York and Texas, and 7 percent in Illinois.
California has also become a major hub for real estate investments, but given that there is no national registry for real estate purchases, Chinese nationals are able to hide their purchases from the Chinese regime.
“Larger publicized Chinese real estate plays in California thus far have concentrated on hospitality, including Shenzhen New World Group’s dual acquisitions of the Marriott Downtown and Sheraton Universal hotels in Los Angeles in 2010 and 2011, respectively,” according to the Asia Society report.
Confronting Policy Issues
“U.S. affiliates of Chinese companies are not pure market actors and may be driven by state goals, not market forces. China’s outward investments are dominated by state-owned and state-controlled enterprises (SOEs). These entities are potentially disruptive because they frequently respond to policies of the Chinese government,” the U.S.-China Commission report states.
The dilemma is that most companies that invest in overseas companies are state-owned and state-controlled enterprises. Thus, the ultimate control of investments is in the hands of the Chinese regime, which dictates the type of investment the SOE may pursue.
Given that the Chinese regime provides subsidies to its firms, including for investments, Western companies may be priced out of the bidding process, which could result in an increased SOE presence in the United States.
“An increased SOE presence may be harmful to the U.S. economy. In China, SOEs are a major force but as a group they are less efficient and profitable than private firms. To the extent that SOEs purchase U.S. companies on the basis of artificial advantages and operate inefficiently, they may not be beneficial to long-term U.S. economic performance,” the U.S. China Commission report argues.
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