Chinese investment in the US hits record level
Wanxiang Group deal with Mass. firm helps set mark
Chinese investment in American businesses hit a record $6.5 billion in 2012 , with the third largest deal closing in Massachusetts when China's biggest auto parts maker invested in a Cambridge alternative energy firm.
In May, auto parts conglomerate Wanxiang Group agreed to take a $420 million minority stake in GreatPoint Energy , which is working to make synthetic natural gas out of coal, as part of a $1.25 billion deal to build a coal-to-gas conversion plant in Western China.
Wanxiang's North American arm, meanwhile, is finalizing a $256.6 million acquisition of bankrupt Waltham battery make A123 Systems Inc. — a deal that is expected to help make 2013 another record year for Chinese investment in the United States.
Several other big Chinese investments are waiting to close this year, including a $4.2 billion deal to purchase an 80 percent stake in AIG's aviation leasing unit, said Thilo Hanemann, research director at Rhodium Group, a New York investment research firm. He said Chinese firms, at a minimum, will invest some $5 billion in US companies.
"It is likely we'll see another record year," he said.
While the Chinese are still relatively small players in the United States, accounting for less than 1 percent of total foreign investment in the country, according to Rhodium, China is among the few nations that have increased direct investment here. In contrast, the biggest source of foreign investment in United States, Europe, has pulled back compared to five years ago, as the region has struggled with a series of economic crises, according to Rhodium.
Particularly attractive for Chinese investors are the US energy extraction and advanced manufacturing sectors, as well as utilities, real estate, and hospitality, according to Rhodium. These industries, many believe, can help Chinese firms move into technology and other sophisticated products that yield bigger profit margins.
Chinese investments in energy and advanced manufacturing sectors, like the deals made by Wanxiang, could also be a boost for capital-intensive clean technology firms. Many US alternative energy operations have struggled as overall investment in the industry has fallen, both because of a slowing global economy and a decline in government support as deficit concerns take center stage.
GreatPoint is already benefiting from its Chinese investment. Chief executive Andrew Perlman said the Wanxiang deal made it possible for the still-young Cambridge company to operate at an international level.
"It's really raised our prominence in China and given us the ability to do business there in a way that we never could have done on our own," Perlman said.
Chinese investment in the United States, however, faces challenges ahead.
In particular, federal regulators have increased their scrutiny of foreign interest, from China and others, in American assets, citing concerns about foreign competitors acquiring critical US technologies.
If such oversight becomes too political, some analysts worry, it could stifle a much-needed influx of foreign cash.
"That definitely has an impact among Chinese investors," Hanemann said, "that could damage the US in the long term."