China’s Increasing Private Equity Investment in the US

Posted on by Jonathan Lee

The United States and China recently planned to restart talks for an investment treaty with “Beijing dropping previous efforts to protect certain sectors of its economy from the start.”1 While government-directed investment into resources and finance remain the vast majority of overall Chinese investment in the United States (over 90%), many private investment players have entered the field recently.2 In fact, the trend reveals that seventy percent (70%) of all Chinese investment in the United States came from private firms in 2013.3

In 2013, Chinese companies invested a record high $14 billion in the United States.4 Firms such as Fosun and Shuanghui International have aquired American property and even entered the food industry through the acquisition of American pork giant Smithfield Foods for $4.7 billion.5 Moreover, real estate private equity firms such as the Grand China Fund have purchased over 2,600 apartment units across Boston, New York, Atlanta, San Francisco, and Houston.6 In 2013, Pan Shiyi, chairman of SOHO China a real estate private equity firm, and his wife Zhang Xin, the firm’s CEO, bought a 40% stake in the General Motors building in New York City.7 As of last year, Chinese investment in the American real estate had grown $600 million since 2011.8 Some analysts argue that the increase in investment occurred because Chinese real estate equity firms were attracted by the United States’ “economic recovery, ample market liquidity, and the stability of returns.”9 Importantly, for the United States, China’s money is not just flowing into the largest and wealthiest cities. For example, Detroit has become the “fourth most popular US destination for Chinese real estate investors.”10 The Dongdu International Group purchased two of the city’s icons, the Detroit Free Press building and the David Stott building for $9.4 million and $4.2 million respectively.11

2014 bodes well for increased Chinese investment because of “aggressive economic reforms in China, a more liberal policy environment for Chinese outbound investors, and a positive outlook for the U.S. economy.”12 The Chinese government is becoming more supportive of overseas investment by lifting restrictions on financial flows and encouraging Chinese companies to invest globally.13 However, the same cannot be said for domestic investment into China. For example, the government prohibits foreigners from acquiring significant properties, including both real estate and businesses in sensitive industries.14 Moreover, in order to enter the Chinese market at all, foreign companies face mandatory investment requirements such as forced joint venture partnerships with local Chinese firms.15

  1. U.S., China Urged to Finalize Investment Treaty in 2014, REUTERS (Feb. 10, 2014, 4:49 PM), http://www.reuters.com/article/2014/02/10/idUSL2N0LF12I20140210. ↩

  2. Derrick Scissors, Rising Chinese Outbound Investment may bring Benefits and Problems, S. CHINA MORNING POST (Jan. 21, 2014. 4:03 AM), http://www.scmp.com/business/china-business/article/1409631/rising-chinese-outbound-investment-may-bring-benefits-and. ↩

  3. Dexter Roberts, Chinese Investment in U.S. Doubles to $14 Billion in 2013, BUS. WK. (Jan. 8, 2014) , http://www.businessweek.com/articles/2014-01-08/chinese-investment-into-u-dot-s-dot-doubles-to-14-billion-in-2013. ↩

  4. Id. ↩

  5. Scissors, supra note 2. ↩

  6. Chinese private equity firms make major investments in US, WANT CHINA TIMES (Dec. 15, 2013, 9:01 AM), http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20131215000004&cid=1102. ↩

  7. Id. ↩

  8. Id. ↩

  9. Esther Fung, Chinese Property Investors Widen Footprint in U.S., WALL ST. J. (Sept. 24, 2013, 1:31 PM), http://online.wsj.com/news/articles/SB10001424052702303983904579094723756080610. ↩

  10. Steven Hill, China’s investments in the US are growing. Should we be Concerned?, GUARDIAN (Jan. 24, 2014, 10:51 AM), http://www.theguardian.com/commentisfree/2014/jan/24/chinese-investment-growing-us-good. ↩

  11. Id. ↩

  12. Roberts, supra note 3. ↩

  13. Michael Schuman, Wake Up America, the Chinese (Investors) are Coming!, TIME BUS.& Money (Jan. 16, 2014,) http://business.time.com/2014/01/16/wake-up-america-the-chinese-investors-are-coming/. ↩

  14. Hill, supra note 10. ↩

  15. Id. ↩

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