The rise and changing composition of foreign investment from China

Chinese President Xi Jinping’s U.S. visit—with the innovators in Seattle and the regulators and policymakers in Washington—exemplifies the increasingly complex, and in many ways maturing, bilateral economic relationship between the two countries. Increasingly, Chinese companies are venturing outside of their own borders and investing directly in the United States. They’re doing so in order to sell to the world’s largest market, tap into leading technology clusters, and secure critical inputs for production.

In terms of the number of associated jobs, FDI from China remains small. Chinese firms (excluding Hong Kong and Taiwan) accounted for only 11,600 U.S. jobs in 2011 per a Brookings report, just 0.2 percent of all jobs in majority foreign-owned business establishments. This modest number, however, masks rapid growth: From 2007 to 2011, the U.S. Bureau of Economic Analysis estimates that employment in the U.S. affiliates of Chinese companies increased by over 800 percent. The Rhodium Group, a research outfit specializing in Chinese investment, reports that number skyrocketing again in 2013.

The composition and geography of FDI from China has already started to change. Chinese companies originally entered the U.S. market to engage in in trade facilitation activities such as banking and distribution in metro areas like New York and Los Angeles. Today, Chinese companies are investing heavily in the natural resources and agricultural sectors—exemplified by the 2013 acquisitions of food and energy companies such as Smithfield Foods, Nexen, and Wolfcamp Shale, as well as other greenfield investments.

Chinese companies have an increasingly large presence in places with strong technology clusters, such as San Jose, Detroit, and Dallas, too. In San Jose, Chinese FDI has concentrated in IT services through companies such as Asiainfo Linkage and Neusoft. Chinese automakers Yangfeng, SAIC, and Changan have all been drawn to Detroit, the knowledge capital of global automaking, where the latter opened an R&D center in 2011. Giants Huawei and ZTE, meanwhile, followed the lead of several of their peers and choose telecoms-heavy Dallas for their U.S. headquarters.

In general Chinese FDI is becoming an increasingly common fixture in the nation’s advanced industries. R&D spending in the U.S. operations of Chinese companies increased from nearly zero in 2007 to $366 million in 2011, betraying an intense interest on behalf of many Chinese companies in technological learning and, in some cases, technology sourcing. In the first quarter of 2014, Chinese FDI into U.S. high-tech exploded to $6 billion—more than the total from 2009 to 2013 combined—and was led by the acquisitions of Chicago-based Motorola Mobility and Los Angeles-based Fisker Automotive, an electric carmaker.

The case of A123 Systems, an ailing advanced battery manufacturer out of Boston and Detroit that was acquired by the Wanxiang Group, illustrates the benefits and drawbacks of high-tech FDI between two fierce competitors: The investment preserved U.S. jobs and retained know-how and technology development locally, but the intellectual property rights crossed the Pacific.

As Chinese FDI in the United States grows and diversifies, expect it to add another complicated wrinkle to an already complex relationship.