Fisher Investments Editorial Staff
Globalization, Trade, Capitalism, Media Hype/Myths

Capital Wanted: Invest Within

By, 05/13/2011

Story Highlights:

  • Chinese overseas direct investment seems set to surge in the next decade, potentially meaning a fairly sizeable number of investments within the United States.
  • Similar to fears of a Japanese takeover in the 1980s and 1990s, xenophobia is largely misplaced.
  • Chinese investment in US companies creates jobs and provides much-needed capital for things like research and acquisitions.
  • Increased foreign investment inflows along with freer trade policies can be mutually beneficial to both countries.

China’s fast economic growth in recent years has driven a fast-growing store of capital in the country—capital that’s been invested in various locations globally in recent years. Now, a recent report suggests Chinese overseas direct investment could surge to $100-200 billion a year over the next decade, surpassing inbound investment to the country within the next three years.

The US is a likely destination for a decent bundle of this money as Chinese firms seek to invest in US companies with skilled labor and technology. In fact, the US has already received an infusion of Chinese cash—Chinese ownership of US equities has risen from $3 billion in 2004 to $127 billion last June. And that’s a plus.

However, some view the potential for increased Chinese investment as a negative for America—that the Chinese are somehow “buying up” valuable US assets to the detriment of American individuals and businesses. If that sounds familiar, it’s probably because you remember the exact same misplaced worries from the late 1980s and early 1990s—when increased Japanese investment (like the purchase of Pebble Beach and Rockefeller Center) led to similar fears. But time has proven those fears false—Japanese companies today employ hundreds of thousands of Americans (to those Americans’ benefit, we can only presume), and few would argue Japan has “conquered” the US or otherwise caused negative consequences. Today, too many people ignore that, choosing to view the economic relationship between the US and China as “us versus them”—a belief that raises hot political rhetoric against Chinese foreign direct investment (FDI) in America (and free trade, among many other things).

Here’s the thing: Capital tends to flow towards the most efficient users—so China’s money coming stateside to invest in US businesses should really be seen as a vote of confidence in the US’ long-term potential. Likewise, it implies Chinese companies and investors believe their US investments probably present a better opportunity than other alternatives. FDI helps both companies and countries raise sought-after capital—which isn’t a bad thing at all. 

A more reasoned view shows the US and China are more economically intertwined than ever before—to the benefit of both. For example, what ills has China’s increased investment caused us thus far? Well, so far, it’s likely provided capital to firms seeking it—helping firms expand initiatives like research and development, mergers and acquisitions, capital expenditures, and hiring. Last time we checked, these were all good things. Moreover, freer and more open borders to direct investment here might mean the Chinese are amenable to opening more of their to markets to US companies in return.  

No matter your opinion of China, we should welcome capital infused into our nation’s economy. That, combined with free trade, makes their growth ours, and our growth theirs. Xenophobia (or specifically in this case, sinophobia) is simply not beneficial to economic growth.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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