A quarter century ago, Americans were rattled by a surge of money coming from an Asian upstart, Japan. It seemed that Japanese firms were everywhere, buying everything, from cherished landmarks like Rockefeller Center to prized corporate assets such as Columbia Pictures. Was anything safe or sacred before an avalanche of Japanese cash?
Today, the U.S. is potentially facing yet another onslaught from Asia, this time from another economic rival, China. Just like Japan in the 1980s, China today is translating its expanding wealth into global economic clout. China last year overtook the U.S. as the world’s biggest trading nation. And increasingly, like the Japanese, Chinese firms are morphing themselves form manufacturers and exporters into major global investors. According to data from the American Enterprise Institute and Heritage Foundation, Chinese outward investment reached $85 billion in 2013, a dramatic increase from a mere $10 billion in 2005. The U.S. has been the No.1 destination, luring more than $14 billion of investment last year alone.
That trend is likely to continue. The Chinese government is becoming more and more supportive of Chinese overseas investment. One goal of a renewed effort to reform the economy, launched by newly installed President Xi Jinping last year, is to liberalize financial flows and encourage Chinese companies to invest more outside of China. Deals done by Chinese firms are steadily rising in profile and size. Last year, China’s Shuanghui agreed to purchase American pork giant Smithfield Foods for $4.7 billion, the biggest Chinese acquisition of a U.S. company yet. Right now, Chinese automaker Dongfeng is currently looking to grab a significant stake in struggling French carmaker Peugeot.
Not all Chinese money has been so welcome, however. Much like Japanese investment decades ago, Chinese incursions are sparking jitters. Concerns about cybersecurity in Washington have stymied attempts by mysterious Chinese telecom equipment maker Huawei to buy U.S. assets. Another worry is that investment from highly subsidized Chinese state-owned enterprises will expand the influence of China’s government or skew market competition. According to the AEI-Heritage data, SOEs account for 68% of all investment in the U.S. (Outside of the US, their share is much larger, at roughly 94%.) Even the innocuous-sounding Smithfield deal faced criticism in Congress, with lawmakers questioning if Chinese ownership could damage American economic interests or taint the food supply.
Perhaps certain Chinese deals should be examined with a discerning eye, especially on national security grounds. But overall, greater Chinese investment could boost growth and jobs in the U.S. and around the world. Once-feared Japanese investment has become a major source of employment in the U.S. According to the Japan Automobile Manufacturers Association, Japan’s carmakers and their dealer networks employ more than 400,000 people in the U.S. That’s why investment from Japan no longer upsets anyone in America. Japan’s Suntory announced on Monday it will buy U.S. bourbon distiller Beam in a $16 billion deal. Soon Chinese investors will probably seem every bit as ordinary.