The Dragon is Only Nibbling
Not too long ago, at the end of the 1980s (although I acknowledge that for some of the followers of this blog this equals a lifetime), Japanese investment in the United States peaked at about US$ 20 billion. By then, management scholars had long begun to study the Japanese miracle. Based on a general fear that Japanese companies would completely control the US economy, US authors such as Bill Ouchi (in his 1981 book ‘Theory Z: How American Management Can Meet the Japanese Challenge) introduced new ideas, and US companies implemented new processes such as the Toyota system of manufacturing. Everybody was up in arms about the Japanese threat. As always, history seems to repeat itself.
In the context of Chinese president Hu Jintao’s recent visit to the US, there have been nervous reports about Chinese companies taking over US businesses. And indeed, there have been some well-publicized cases – Chinese consumer electronics producer Haier’s early Greenfield investment in 2002, or the more recent Beijing Automotive Industry Company’s (BAIC) acquisition of General Motors’ Saab division, Beijing West Industries’ purchase of Michigan-based automotive supplier Delphi Corporation, or numerous smaller investments in US companies by China Investment Corporation (CIC).
Obviously there’s enough activity to make The Economist cry out that China’s buying the world and to ask the question what it is like to be ‘eaten by the dragon’ (The Economist, November 13th, 2010). Relax, knowledge of foreign languages is always a good thing, but it isn’t time yet that we all learn Mandarin. Why? Let’s take a closer look at the data: Out of the total book value of foreign direct investors’ equity in US companies in 2009 (it’ll take a while until we have 2010 data) of US$ 2,319.6 billion, China’s share is still insignificant. The largest investing countries are still based in the Western Hemisphere – the United Kingdom (19.6%), the Netherlands (10.3%), Canada (9.7%), Germany (9.4%), Switzerland (8.2%), and France (8.2%).
The only exception, of course, is Japan which holds about 11.4 % of the total foreign direct investment in the United States. In a July 2010 report by the Bureau of Economic Analysis (BEA), China isn’t even mentioned – and that’s for a good reason: China’s total assets in the US are about a 300 times smaller than those of Japan. Even small countries’ foreign direct investments in the United States such as Austria or Panama are larger than China’s. Of course, there’s no question that Chinese investment in the US is growing fast and may soon outgrow the “Other” category on the BEA pie charts, but it’s still to early to panic. And even if China held a lot more assets in the United States, it probably would not mean the end of the world just like Japanese investment in the United States hasn’t.
The world is flat, and an increased involvement of China in US companies may be a source of (desperately needed) capital, (desparately needed) new energy and motivation, learning, and global stability.
I think your last sentence says it all, China’s increased interest in acquiring U.S. businesses would provide a much-needed stimulus for our struggling economy. I would think people would be welcoming China’s presence, especially considering how much the U.S. supports the idea of a global economy. With capital from China coming into the U.S. economy, there would be an increased likelihood for American companies to prosper. Although Chinese interest in American investments is on the rise, like you said earlier, they still amount to a very small percentage of foreign investment compared to other countries. So even if Chinese investments in American businesses grow rapidly, the U.S. would have opportunity to reinvest in local businesses with the capital earned from Chinese investments.
We are very dependable.
It’s quite interesting to see the quantitative data regarding the percentages of investments that foreign countries have made in comparison to China. I think it is easy for American businesses to get flustered when they see the increase in the amount of capital coming from China. However, when looking at the numbers, it is easier to step back and have some perspective. The world has indeed been flattened with the prevalence of information and communication over the internet. The US is going to have developing economies take an increased role in providing foreign investment. Such changes can be unnerving, and although it is good to think of possible negative outcomes, focusing on them, instead of the positive outcomes that can be made with such capital, does US companies a disservice. It would be better for them to take the energy they spend worrying and channel that into making profits and reinvesting, as Spencer suggested.
I realize this post is somewhat dated now, but I find it amazing that this topic has lost so much interest. I absolutely agree that China is not a threat, and should be welcome to invest in the United States government just like many other countries in the world. To be honest it seems to border on fear-mongering, this idea that a country, and a people can have a lien placed on them. At least the way the media represents China, it comes across as if we owe someone large sums of money in a mobster movie. The Chinese have their own economists and their own motives to invest in a safe and secure environment such as the USA. At a time when funds are running short, we should be happy that they are here to assist in stimulating the economy.
This statement is of utmost truth:
“The world is flat, and an increased involvement of China in US companies may be a source of (desperately needed) capital, (desparately needed) new energy and motivation, learning, and global stability.”
I see this growth as no big deal at all. China and Japan are simply growing; and quite frankly we need their help.