Published on: interviews Jim Butler on Chinese Investment and US Economic Issues

12 December 2016

I was recently interviewed by to discuss Chinese investment in the United States, including why the US is an attractive market for Chinese dollars, how it helps the US economy, and what it means for the Chinese market. Some selected excerpts from our conversation are below.

The driving factors behind Chinese foreign investment in the United States:

Chinese investors will deploy a record $212.7 billion in investments outside China. This trend is driven by a number of factors: Chinese real estate and stock market bubbles are bursting; The Chinese economy is slowing down so foreign investment (as in the US) are more attractive; The yuan has been depreciating against the dollar, making US dollar-denominated investments more attractive. Many Chinese investors, ranging from very wealthy individuals to insurance companies, find themselves with significant amounts of cash that need to be deployed into large, high-yielding investments. US commercial real estate is one of the few markets and asset types that can meet these requirements (large, high-yielding).

Chinese foreign investment has been encouraged by the Chinese government for building “soft power,” which is building the image of China and expanding its influence. Finally, many Chinese investors see synergies for using their foreign investment to take advantage of the Chinese market. Chinese travelers are expected to spend more than $72 billion at home and abroad in 2016. So everything related to travel, tourism, lodging, and entertainment plays into this growing market.

What makes the United States attractive to Chinese investors:

No one should underestimate the importance of the political and economic stability enjoyed by the United States, making it a haven for foreign investment. The United States has also been a “friendly” destination for Chinese investors, both in terms of the ease with which they can make the investment, and inviting place in which they can send their children to school or family members to seek healthcare, or seek political refuge if the tide turns against them at home.

The impact of Chinese restrictions on foreign investment:

China’s investment in the US and other countries outside China expanded tremendously when the Chinese government loosened restrictions in 2014. But, Beijing’s concerns about large capital outflows have led to newly announced regulations designed for greater scrutiny over certain transactions, such as “extra large” foreign acquisitions of more than $10 billion, investments by state-owned firms of more than $1 billion, or investments by any Chinese company of more than $1 billion if not related to the company’s core business. The impact of this prospective regulation is unknown. It may put a significant damper on foreign investment from China, or it may ironically scare Chinese investors to get more money out of the country faster.

Whether Chinese investment is beneficial to the United States economy:

Unless causing a major economic disruption or bubble, the inflow of capital into the US is the ultimate vote of confidence in the country and its economy. Capital inflows provide liquidity. Capital investment stimulates economic growth and provides jobs, infrastructure, and opportunities. Foreign investment also serves to align the economic interests of the foreign investors, and their country, with the interests of the people and country of the targeted investments. This is particularly true with real estate investments, which are inherently immobile.

You can read the rest of the interview on the website by clicking Chinese Economic Issues Mean More US Investment (subscription required).

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