Sidebar: Is protectionism a mutual concern?

Chinese businesses increasingly aspire to “go global.” Take, for example, Chinese automaker Geely’s high-profile acquisition of Ford Motor Company’s Volvo brand. According to PwC M&A research, in the first half of 2010, seven Chinese outbound deals exceeded US$1 billion in value, the largest being Sinopec’s US$4.7-billion acquisition of a 9 percent stake in Synacrude from ConocoPhillips.1 Chinese companies’ demand for high-tech goods and services from around the world is increasing rapidly as they strive to move up the value chain.

This is all good news for the US because boosting American exports to China and attracting Chinese investment into the US will help revitalize the American economy and create new jobs. Still, for many reasons— ranging from the Cold War legacy to tense negotiations over such issues as currency exchange rates—roadblocks to increasing trade and investment exist. For example, US Commerce Secretary Gary Locke recently faced demands in China for reforming US export controls—that is, relaxing restrictions on the sale of dual-use technology (technology with potential for military application) to China.2 Chinese companies, from oil major CNOOC Ltd. in 2005 to telecoms equipment maker Huawei more recently, have struggled to make rapid inroads into the US market because of alleged national security concerns.

The charts illustrate US-China cross-border investment patterns over the past five years.

From 2004 to 2009, the US accounted for one-third of all foreign direct investment (FDI) received by China. In the same period, the US received four times as much FDI, to which China’s contribution was very small. (See Figure 2.)

Figure 4

China’s cumulative outbound FDI to regions around the world from 2004 to 2009

More than 60 percent of all US FDI into China is greenfield, while the Chinese are relying almost entirely on acquisitions as they expand into the US. (See Figure 3.)

The Asia-Pacific region accounts for the vast majority of China’s cumulative outbound FDI during this period. In contrast, the US, the world’s largest FDI recipient, received just over 5 percent of China’s outbound investment. This is nearly equal to Africa’s share. While it reflects that natural resources are a priority target for Chinese investors, the US lags behind the mature economies of Europe in receiving Chinese investment. (See Figure 4.)

This may be gradually changing. Yearly averages show that US investments into China are large but declining, while China’s investments into the US are small but slowly increasing. (See Figure 5.)

Figure 5

Yearly average US outbound FDI to China and China outbound FDI to the US (as a proportion of total FDI received by each country) from 2004 to 2009

1 PwC news release, “China outbound M&A deal activity up by more than 50%,” August 16, 2010.

2 “Wang Presses U.S. on Lifting Export Controls After Locke Pledge Over Scope,” Bloomberg News, May 24, 2010.