China Invests Heavily in US Real Estate, Energy

By Stephanie Henry

US governors are heading to China in increasing numbers to seek potential investors for public and private projects. Since 2009, US governors have led 58 trade missions to China, helping to usher in more than $34 billion in direct investment over the last five years. Those trips have helped grow total Chinese foreign direct investment (FDI) in the United States to almost $40 billion since 2000, according to the Rhodium Group consultancy.

But it isn’t just local trade missions that are spurring investment. Foreign investors are showing growing levels of confidence in the US economic outlook, according to data from AT Kearny’s 2014 Foreign Direct Investment Confidence Index. Nearly 50 percent of global investors are more positive about the American economy than any other economy, the highest proportion in the survey’s history. Analysts attribute this, in part, to the US energy boom in shale gas. Twenty-eight percent of investors surveyed said they are increasing US investments because of this energy outlook.

Where are investments going?

Of the nearly $40 billion in Chinese investments made since 2000, the Rhodium Group estimates that around 67 percent of deals have been acquisitions, while 33 percent have been greenfield investments. Most deals—72 percent—involve private investors, compared to 28 percent for government investors.

Energy  Since 2000, the United States’ energy sector has earned a larger share of Chinese investment than any other sector. Nearly $12 billion in deals have been forged over the last 14 years, despite increased scrutiny from the Committee on Foreign Investment in the United States. Chinese firms have announced a wide array of investments in the US energy market, including renewable energy and natural gas projects. Just last month, Shunfeng Photovoltaic International Ltd announced a $25 million investment in Powen Energy Corp, an Oregon-based energy-storage company. In January, Shenhua Energy announced its plan to join with Energy Corporation of America to drill for natural gas in Pennsylvania. And in 2013, Sinopec Group and ENN Group Co. Ltd announced separate investments in US shale and natural gas, respectively.

Commercial real estate  Chinese investors are increasingly turning toward real estate as a means to invest in the United States. In the second quarter of 2014 alone, Chinese investors poured about $600 million into US commercial real estate. That money boosts growth by hastening the development of projects that are already underway, real estate analysts say. These projects in turn present lucrative opportunities for US construction and industrial development companies.

Residential real estate  New Chinese investors are also looking to buy residential real estate, according to the National Association of Realtors (NAR). In July 2014, NAR reported that China is “the fastest growing source of [foreign] clients” for US residential real estate. NAR estimates that Chinese investors made up nearly a quarter of foreign transactions by value—$22 billion—from March 2013 to March 2014. Chinese investors also paid more for their homes, on average, than investors from any other foreign country over that time period. Notably, 76 percent of payments were in cash, and most purchases were made in California (35 percent), Washington state (9 percent), and New York state (7 percent).

What do investments mean for US jobs?

Chinese investors are contributing to a growing share of employment in the United States. In 2011—the latest year data was available—Chinese affiliates in the United States employed 13.2 million US workers, according to the US Bureau of Economic Analysis. Aside from jobs created by Chinese greenfield investments, some positions have been protected by the terms of M&A transactions. For example, when Chinese firm Shuanghui acquired US pork producer Smithfield in 2013, Shuanghui committed to retain Smithfields’ US workforce, helping to neutralize some—though not all—criticism surrounding the deal.

Growth in context

Though Chinese FDI in the United States is growing, context is key. On a cumulative scale, Chinese FDI still falls far below that of other major Asian economies, like Japan, which has invested nearly $342 billion in the United States since 1970. Other leading investors include Germany, Canada, and the United Kingdom, which boast total investments since 1970 of $208 billion, $238 billion, and $519 billion.

At the same time, China’s economy is more than double the size of most of these leading investors, according to World Bank estimates. In terms of GDP, China’s economy reached a value of $9.2 trillion in 2013, almost twice the size of Japan’s $4.9 trillion market, and larger by far than Germany ($3.6 trillion), the United Kingdom ($2.5 trillion), and Canada ($1.8 trillion).

[author] Stephanie Henry ([email protected]) is manager of government affairs at the US-China Business Council’s Washington, DC office. [/author]

(Photo by Mark Moz via Flickr)