China's International Investment and the United States

DOIhttp://doi.org/10.1002/jcaf.22069
Published date01 September 2015
Date01 September 2015
13
© 2015 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22069
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China’s International Investment and
the United States
Roger Y. W. Tang and Kuanchin Chen
Foreign direct
investment
(FDI) has been
a key driver of eco-
nomic growth and
international trade
expansion for China
over the past three
decades. Between
1980 and 2010, China
received about $1
trillion of FDI from
abroad, and its econ-
omy was growing at
an average rate of
about 10% per year
during that period. In
recent years, China’s
economic growth rate
has declined slightly.
For example, in the first two
quarters of 2014, China’s
economy grew at an annual rate
of about 7.4 to 7.5%. In early
October 2014, the World Bank
lowered its forecast for Chinese
GDP growth in 2014 to 7.4%
and in 2015 to 7.2% (Lahart,
2013). These rates may be
lower than those experienced
by China in 2012 and 2013, but
the forecasted rates for 2014
and 2015 are still higher than
the growth rates of many devel-
oped and developing countries.
China’s international trade
is closely tied to FDI because
about 46% of the nation’s
imports and exports were
conducted by foreign invested
enterprises (FIEs) in 2013. In
recent years, China’s foreign
trade has expanded rapidly.
Since 2009, China has also
become the largest merchandise
exporting country, followed
by the United States, Ger-
many, and Japan. China has
also accumulated a substantial
trade surplus over the past two
decades. By the end
of the first quarter of
2014, China’s foreign
exchange reserves
had reached an all-
time record of $3.95
trillion. At the end
of June 2014, China’s
holdings of U.S.
Treasuries were $1.27
trillion, about 7.2%
of the U.S. national
debt. Other countries
that had large hold-
ings of U.S. Treasur-
ies included Japan,
Belgium, Brazil, and
Taiwan.
As China
expands its economy
and trade, it is also revising its
international investment poli-
cies. In 2000, China adopted
a “Going Out” or “Going
Global” strategy and encour-
aged qualified enterprises to
invest overseas. In 2007, China
created the China Investment
Corporation (CIC) to manage
part of the foreign exchange
reserves by making portfolio
investments in overseas equi-
ties, private firms, and real
estate. By 2013, China’s out-
ward direct investment (ODI)
Chinese investment in the United States has
grown from less than $1 billion in 2009 to about
$13 billion in 2013. China and the United States
are in the process of negotiating a bilateral invest-
ment treaty (BIT). The two sides have made sig-
nificant progress, but some difficult issues remain.
It is in the interests of both countries to reach a
BIT soon. The new BIT will not only benefit China
and the United States but will also promote global
investment, trade, and economic growth in many
other countries. The main purpose of this article
is to examine the recent changes in foreign direct
investment (FDI) in China and China’s outward
direct investment (ODI), and to review the bilateral
investment relationships between China and the
United States. © 2015 Wiley Periodicals, Inc.

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