Economic and strategic considerations surrounding Chinese FDI in the United States

The growth of outward investment from China has generated expressions of concern from policymakers in the United States regarding the economic and national security impacts of such investments. While inward foreign direct investment (FDI) has come to be viewed by most observers as generally imparting net economic benefits to the host economy, acquisitions of US companies by Chinese multinational companies (MNCs) have been criticized on several grounds. One is based on the mode of entry itself: some critics believe that entry by acquisition brings lower benefits than greenfield entry. A second and more prominent concern is that acquisitions of US companies by Chinese state-owned enterprises (SOEs) may be motivated by non-commercial objectives which, in turn, make those acquisitions of questionable value to the host economy. In this paper, we argue that Chinese FDI in the United States is more likely to take the form of acquisitions than greenfield investments for the foreseeable future. However, there is no strong case to be made that the host country economic benefits from Chinese FDI would be larger if entry took place primarily through greenfield investments. Furthermore, most of the alleged costs to the US economy from inward FDI from China are either unlikely to occur or are already anticipated by existing US laws and regulations, thus necessitating no additional, specific legislation.