Chinese Cash Chases High-Tech Deals in the U.S.

Twenty years ago, China was a relatively poor country with minimal outbound investment. A decade later, several of China’s large state-owned enterprises and private companies were investing in extractive industries—especially projects focused on oil and gas—in Africa, Mongolia, Australia, Canada, and elsewhere.

The Chinese outbound investment portfolio has significantly broadened. A report from the Asia Society and Rhodium Group, High Tech: The Next Wave of Chinese Investment in America, tracks the growth and diversification of Chinese investment in the United States.

According to the report, China’s total outbound investment stood at less than $3 billion in 2004. It reached $20 billion in 2006—and $50 billion in 2008. After the global financial crisis, Beijing spent significantly on a domestic stimulus package while China’s outbound investment held steady at about $50 billion annually.

Rhodium Group’s China Investment Monitor, which launched in 2011, is a database tracking Chinese investment in the U.S. Its records show that Chinese companies signed 794 investment deals with U.S. companies from 2000 to 2013, totaling $36.1 billion. “Before 2008, deal flows typically stood at less than $1 billion annually, with the singular exception of Lenovo’s (992:HK) $1.75 billion acquisition of IBM’s (IBM) personal computing (PC) division in 2005,” the report notes. Since 2008, both the overall investment flow and the size of individual deals have grown quickly. “Annual deal flow reached record highs in 2012 ($7.3 billion) and 2013 ($14.1 billion), driven largely by greater investment from [Chinese] private sector firms.”

In particular, the report examines trends in Chinese investment in 15 high-tech industries, including software and IT services, pharmaceuticals and biotechnology, and renewable energy. For the years 2000-2013, the report authors find “an increase in both the number of transactions and total investment value [in U.S. high-tech] since 2009, but a notable stall in the growth trend for the past two years, 2012 and 2013.” Possible reasons for the stall could include increased U.S. protectionism, either real or perceived, as well as a desire to invest in and incubate China’s own high-tech industries.

While weighing concerns about national security and intellectual property protection, the authors of the report regard increased Chinese investment in America’s innovation industries as mostly a positive force. “Successful Chinese investments will make Americans recognize the potential benefits of greater economic integration with China,” they wrote, “and remind Chinese leaders that openness and convergence with a market-based innovation approach is in China’s own interest.”

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