U.S. says it wants investment, but China remains wary

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BEIJING — As China moves to invest billions in businesses around the world, one major industrial nation has so far soaked up very little of the cash: the United States.

The issue will be on the agenda next week during Vice President Xi Jinping’s official visit to the United States. The Obama administration has made seeking Chinese investment a priority, with an eye toward creating more American jobs. But the flow of funds dropped sharply last year, and experts say the task is complicated by a perception that the United States is an unfriendly place for Chinese investors.

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Where China invests: not much in U.S.
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Where China invests: not much in U.S.

With Ambassador Gary Locke taking the lead in the effort, American officials are trying to overcome a sense here that the United States is hostile to Chinese investment; that national security concerns pose insurmountable obstacles; and that members of Congress, local politicians and sometimes even the media will vocally oppose attempts by “Red China” to acquire or put money into struggling or start-up American firms.

“We want to make it clear that the U.S. welcomes investment from China,’’ said Christopher Quinlivan, commercial counselor at the U.S. Embassy in Beijing.

While China’s investment in the United States has shown overall growth over the past five years, it still represents less than 1 percent of all foreign investment in the United States, said Thilo Hanemann, research director at the Rhodium Group, a New York-based economic research firm that tracks the inflow.

Chinese companies — primarily state-owned enterprises — began seriously investing overseas only in the middle of the past decade and kept the vast majority of their funds in Asia and places with mineral resources, such as Australia.

New figures supplied by China’s Commerce Ministry put investment in the United States in 2011 at $1.13 billion, far less than the $4.6 billion in Europe. The U.S. figure also represents a 19 percent drop from the previous year, although overall investment has increased more than fivefold from 2007, when it stood at just $195 million, according to Chinese government statistics.

Among about 260 U.S. projects that have attracted Chinese capital, the largest share in dollar terms has come from Chinese state-owned enterprises investing in things such as steel and shale natural gas, according to the Rhodium Group. Most of the investments have been smaller stakes taken by Chinese private businesses, often in the renewable or clean-energy sector. The U.S. government does not provide nationwide figures on Chinese investment.

Overall, some experts now expect that China will send as much as $2 trillion in investments overseas between now and 2020 as the country tries to shift its economy away from a reliance on exports.

A hard sell

Until recently, the task of promoting the United States to Chinese investors was left to state and local officials, but the Obama administration has launched a new initiative, called “Select USA,” to drum up investors’ interest.

Locke, a former commerce secretary, has been talking up the United States as an investment destination since he arrived here last summer, but it’s proving a hard sell.

Chinese business owners who want to invest in the United States say they often have a difficult time obtaining a U.S. visa to be able to travel and see projects. Cui Tiankai, a Chinese vice foreign minister in charge of U.S. affairs, said a major goal of Xi’s upcoming trip would be to address such concerns.

“We want to see obstacles standing in the way of our business ties to be removed,” Cui said Thursday at a briefing for foreign reporters here, mentioning “the removal of U.S. export controls on high-technology exports to China and the removal of barriers to Chinese companies.”

U.S. officials, business leaders and academic experts say such concerns are largely exaggerated. “The U.S. is, in fact, open for business. It has the most open economy in the world,” said Orville Schell, a China expert with the Asia Society who worked with the California governor’s office to arrange a planned stopover by Xi in Los Angeles to explore investment opportunities in the state.

The negative perception persists, Schell and others said, because of the background noise that sometimes surrounds foreign investment. Some compared it to the anti-Japanese sentiment that was common in the 1980s when Japan began making substantial U.S. investments.

Past problems

The failure of a handful of high-profile Chinese investment attempts in the past also has had a powerful effect, leaving many Chinese wary of the U.S. investment climate.

In 2005, the Chinese oil company CNOOC dropped its $18.5 billion bid for the U.S. oil firm Unocal, after some members of Congress expressed security concerns and asked whether CNOOC had unfair access to cheap financing. In early 2011, China’s largest maker of telecommunications equipment, Huawei Technologies, withdrew its bid for the assets of the American company 3Leaf after a review by a U.S. government panel on foreign investment raised concerns about Huawei having links to China’s People’s Liberation Army, which the firm denies.

“After that, Chinese investors are kind of lost and bewildered; they don’t know what they can invest and what they can’t,” said Li Zhongmin, a senior researcher with China’s Institute of World Economics and Politics.

The Asia Society, in a report last year, and other business experts here said those cases were exceptions and most Chinese investment raises no concerns. But those cases “generally created in the minds of Chinese officials and businesses that it’s tough going in the U.S.,” said Theodore Kassinger, an international trade lawyer and partner in the D.C.-based firm O’Melveny and Myers LLP.

New procedures

Overall, experts say, most sectors of the U.S. economy are entirely open to any foreign — including Chinese — investment. And they say the United States poses vastly fewer restrictions on foreign investment than does China, which has foreign ownership restrictions in 100 manufacturing and service sectors, according to a list compiled by the U.S. China Business Council.

What’s more, the Chinese government imposes strict currency controls that can make it difficult to get money out of China, which some here called a bigger impediment than any U.S. government restrictions.

Leon Chiu, a Chinese American who runs Pioneer Materials, a Californian start-up company making materials for the solar power industry, said he had encountered other obstacles to attracting Chinese investment.

“When the Chinese invest, they love seeing land, buildings, equipment, hard assets,” Chiu said. “In the U.S., it’s more software, people, payroll.”

To address the visa concerns, Locke this week announced streamlined procedures including the reopening of an old American embassy facility in Beijing and the addition of 50 consular officers to speed visa processing and help cut down on the waiting time for Chinese applicants.

Researcher Liu Liu in Beijing contributed to this report.

 
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