Thursday, April 9, 2009

An Analysis on Foreign Direct Investment in U.S.: Industries and Countries, Part 2

Now let us look at the operating performances of Chinese FDI in U.S.

The overall performance of China’s FDI in U.S. was disappointed so far, based on the data available between 2003 and 2007. The aggregate net income from China’s FDI was -$20 million in 2003, $66 million in 2004, $11 million in 2005, -$29 million in 2006, and $38 million in 2007. Actually, U.S. BEA changed the net income definition from net income after withholding tax deduction to net income before withholding tax deduction in 2006. Thus, the net income of China’s FDI should be lower in 2006 and 2007 if the definition is consistent.

As a comparison, net income from Asia and Pacific Region was $8.5 billion in 2003, $16.3 billion in 2004, $18.4 billion in 2005, $24.7 billion in 2006, and $26.9 billion in 2007. In addition, China fell behind almost all its major economic competitors in this category, which includes Japan, South Korea, Hong Kong, Taiwan, Singapore, and India. Net income of China’s FDI only accounted a faction of these economies’ net income from their FDI in U.S. in 2007.

If we take the total investment into consideration, return of investment (ROI) of China’s FDI was -7% in 2003, 15% in 2004, 2% in 2005, -3% in 2006, and 3% in 2007. For Asia and Pacific Region, ROI of FDI was 4% in 2003, 7% in 2004, 7% in 2005, 9% in 2006, and 8% in 2007. Except for 2004, ROI of China’s FDI was far below other economies’ in the region. This partly explained why China’s FDI in U.S. is still low. When previous investment did not generate a good return, Chinese investors may be lack of confidence to invest more.

Next we look into industries in which China’s FDI concentrated. Wholesale, manufacturing, and other industries are three sectors that China’s FDI had concentrated in so far. For wholesale sector where received the most China’s FDI in U.S., Chinese ROI is petty low compared to the overall average ROI in U.S (see Table 1).

Table 1

For manufacturing, only 2003 and 2007 data are available now. In both years, China’s FDI in U.S. manufacturing sector had negative net income. Among all industries in manufacturing sector, “Primary and fabricated metals” industry has $4 million net income in 2007, which is the highest net income in manufacturing sector from China’s FDI.

For other industries, which generally include agriculture, forestry, fishing, and hunting; mining; utilities; construction; transportation and warehousing; administration, support, and waste management; health care and social assistance; accommodation and food services; miscellaneous services ; and holding companies (nonbank), China’s FDI had a better performance in recent years (see Table 2).

Table 2

At last, why did China’s FDI in U.S. produce such a poor performance? More about this issue later.

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