Chinese Companies Just Love US Assets

Inbound investment from Chinese companies rises to record
By Emel Akan
Emel Akan
Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.
October 13, 2015 Updated: October 19, 2015

The flow of outbound investment from China to the rest of the world continues to soar in 2015. The United States remains a key market for the Chinese companies with record level transactions.

Chinese firms invested $6.4 billion in the first six months of 2015 across the United States, according to Rhodium Group, a research company. This foreign direct investment (FDI) in the United States by China was the highest half-year figure on record.

Out of the 88 transactions completed, 53 were acquisitions and the rest were greenfield projects, where companies start building their operations from scratch. California was the most popular state, attracting almost half of the funds during that period.

The real estate and hospitality industries are the favorites with 20 deals, accounting for 65 percent of the total sum. The largest transaction was Anbang Insurance’s $1.95 billion acquisition of the New York Waldorf Astoria hotel, which it completed in February 2015.

Chinese investors have been riding the U.S. commercial real estate wave in recent years, motivated by the shift in the Chinese regime’s policy to promote outbound investments, according to Deloitte. With rising economic problems at home, Chinese investors prefer to invest in the U.S. real estate market.

Source: Rhodium Group
Source: Rhodium Group

The second biggest sector for Chinese investment in 2015 was U.S financial services and insurance. With Fosun’s acquisition of a 20 percent stake in Ironshore, it became the first Chinese company to invest in a sizable U.S. insurance company. Fosun is set to acquire the remaining 80 percent of Ironshore in 2015.

According to Rhodium, Chinese conglomerates are willing to buy U.S. insurance assets in order to gain access to a large pool of overseas capital, customers, and know how.

The information and telecommunications technology (ICT) sector also remains a major attraction for Chinese companies in 2015. In ICT, 19 transactions were completed, totaling $312 million in deal value.

Smaller growth companies in software and IT services have been particularly attractive investments for Chinese funds and large Internet companies like Alibaba and Tencent. Semiconductors is another new frontier, with two large deals currently pending: Omnivision and Integrated Silicon Solution Inc.

State-owned Tsinghua Unigroup has also announced its interest in acquiring U.S. chip maker Micron for $23 billion. However, U.S. authorities may block the deal due to national security concerns, according to Reuters.

Investments Took Off in 2010

China’s outbound foreign direct investment spree started in 2010. Chinese companies have completed 695 transactions, investing $50 billion across a wide range of U.S. industries, since then.

California is the most popular state, attracting 30 percent of the deal flow for the past five years. In terms of deal value, however, Virginia and New York have topped the list.

Source: Rhodium Group
Source: Rhodium Group.

Vital to China’s national interests, the energy sector is at the top of Beijing’s agenda for overseas investment according to a report by the Jamestown Foundation. In line with this strategy, the U.S. energy sector has been the biggest target for Chinese investors since 2010. After energy come real estate, ICT, agriculture, and food. 

State-Owned Enterprises Tag Along

Chinese state-owned enterprises (SOE) also have a considerable share in the investment flows. Since 2010, the SOEs have invested $17 billion in the United States, accounting for 34 percent of the deal flow. Several recent large-scale projects will continue to support this trend.

The FDI by Chinese SOEs in the United States has reached $13.7 billion in 2015 (year to date), including announced deals, according to RWR Advisory Group.

The figure includes state-owned Tsinghua Unigroup’s $3.8 billion bid for a 15 percent stake in Western Digital in October. If finalized, the acquisition would be China’s largest technology investment in the United States to date according to RWR.

Policy Liberation Fuels Investments

China implemented reforms in October 2014 that abolished regulatory approvals for most outbound investment transactions. These steps have contributed to a significant rebound in the deal flow.

The relaxation of foreign exchange rules on June 1 may further fuel this trend according to Rhodium Group. With the new regulation, companies no longer have to apply at the State Administration of Foreign Exchange (SAFE) for approval of foreign exchange transactions. Instead, companies can now conduct this step at their local banks. 

“Despite the economic slowdown in China, we have not seen any sign of a slowdown in the outbound investments of Chinese companies. We are busy every day,” said Andrew Davenport from RWR Advisory, a company that tracks global business footprints of Chinese state-owned enterprises.

Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.