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US no longer the most preferred destination for Chinese investors: report

A man adjusts a Chinese flag before a press conference at the Great Hall of the People in Beijing on September 5, 2012 Photo: Getty Images

A recent report published by the well-known Economist Intelligence Unit shows that the United States is becoming less attractive to Chinese investors who are expanding their footprint throughout the world.

The United States ranks second behind Singapore on a list of the world's popular destinations for Chinese overseas investment, while Hong Kong, Malaysia, Australia and Switzerland come in third, fourth, fifth and sixth places respectively, according to the China Going Global Investment Index 2017.

The 2017 Index ranks 60 major economies in terms of their attractiveness to Chinese investors and covers the industries of automobile, consumer goods, energy, financial services, telecommunications and healthcare.

In the Economist Intelligence Unit's last report released in 2015, the United States claimed the top spot in the ranking of countries attracting Chinese investment, which was followed by Singapore. The 2015 report found that the developing countries saw a growth momentum in luring Chinese investment despite the fact that the developed economies still gained an upper hand.

The 2017 report attributed America's slip in the ranking to its growing economic and trade frictions with China, the world's second-largest economy which is pushing its ambitious Belt and Road Initiative which has created plenty of investment opportunities in the emerging markets.

On November 8, some heavy-weight members of the US House of Representatives and Senate submitted a bill titled the Foreign Investment Risk Review Modernization Act in order to expand the jurisdiction of the powerful Committee on Foreign Investment in the United States (CFIUS).

The CFIUS is an interagency panel, chaired by the US Department of the Treasury, with the authority to review foreign acquisitions that could lead to the control of American businesses and harm the country's national security.

If the bill is passed, the joint ventures established by American firms and their foreign partners outside the American territory and these joint ventures' acquisition and franchise right agreements will come under strict scrutiny of the CFIUS. What's more, the deals about sales of "key technologies" and "key infrastructures" which the CFIUS thinks may pose a threat to the national security will also be a target of review by the Committee, if the bill becomes a law.

The bill implicitly targets China, and some of its companies have been stopped from investing in the United States by the CFIUS due to national security concerns, because Senator John Cornyn, one of the backers of the bill, used to strongly criticize China for using the loopholes of the CFIUS' review procedure to whittle America's leading role in military technology by means of acquisitions and investment in American firms. On the contrary, the bill introduced an exemption mechanism that may shield investors from the American allies including the United Kingdom, Japan, Australia and Canada from being investigated by the CFIUS.

The bill came two months after US President Donald Trump blocked Chinese-backed Canyon Bridge Capital Partners from buying Lattice Semiconductor Corp, citing national security concerns. Trump's decision frustrated the Chinese investors seeking investment in the United States and triggered an urgent call for business fairness from China.

On the other hand, Beijing's tightened scrutiny of the overseas investments by the progressive domestic companies, among which many consider the United States as a preferred investment destination, presents another reason behind America's drop.

Since the beginning of this year, the Chinese government has strengthened efforts to curb Chinese companies' enthusiasm for overseas investment, with a purpose of controlling capital flight. Dalian Wanda Group was among the domestic enterprises that Beijing kept an eye on, with its Chairman Wang Jianlin explicitly saying that the company would shift focus on domestic investment to "follow the national call". Previously, Wanda made big investment in US property, cinema and entertainment sectors.

At the same time, the implementation of the Beijing-led Belt and Road Initiative brings the emerging economies into China's vision. The Economist Intelligence Unit report said that the improvement in this year's ranking of countries including Malaysia, Kazakhstan, Thailand and Iran was due to the Belt and Road Initiative, which has offered additional incentives for the Chinese companies to invest in the countries covered by the route.

With the 2017 report saying that China's non-financial foreign direct investment in the first 10 months of 2017 slumped by 40 percent year-on-year, Wang Dan, China chief analyst at the Economist Intelligence Unit, said, "It is still an exciting time to be watching the international expansion of corporate China, but firms should be selective about the regions, countries and industries they choose to engage."

Wang's prediction is echoed by the 2017 report, which said that the slowdown in China's overseas investment in the year could be temporary because Chinese investors still eye global expansion to gain brands and technologies they want and overseas investment only accounts for a small part of the country's gross domestic product, meaning a big growth potential for outbound investment by Chinese companies.
 


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