Slowing Chinese economy drives accelerated investment in the US says law firm FDI report

News | 1 March 2016

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The potent storm of economic and political changes that rocked Chinese markets in early 2016 will continue to drive an unprecedented volume of Chinese capital overseas—especially to the US, according to a survey released on 16 February 2016 in O’Melveny’s 2016 Foreign Direct Investment Report.
 
The report, comprised of responses from strategic and financial investment executives – the majority of whom are headquartered in China – provides insights into foreign investors’ perceptions of the advantages and challenges of foreign direct investment in the US.
 
“We’re poised for a significant increase of Chinese investment in the US for two reasons,” said Larry Sussman, managing partner of O’Melveny’s Beijing office. “On the one hand, the Chinese rightly see the US and its growth potential as an appealing investment. On the other hand, Chinese economic growth is slowing, its markets are increasingly competitive and its government has made efforts to promote freer movement of capital.” 
In fact, nearly half of the investors surveyed viewed the US as the world’s most attractive market for investment, citing the potential for growth as its strongest attribute.  Yet while 38% of respondents perceived the US’s regulatory regime as an attractive attribute, 48% viewed it as the greatest barrier to investment.
  
That seeming contradiction actually paints an accurate portrait of the US market, according to Steve Olson, Los Angeles O’Melveny partner and former executive director of SelectUSA, the US government programme that facilitates foreign direct investment. 
 
“The very attributes that make the United States the most attractive destination for investment in the world can also present challenges to investors,” Olson said. “We are the largest fully developed consumer market in the world, but a highly competitive market.  We’re the most open economy in the world, but certain foreign investments will be reviewed for national security implications.  We’re blessed with an effective and predictable legal system, but businesses in the US face a high rate of litigation.”  
    
The report also depicts Chinese investors’ newfound desire to pursue higher returns through diversified investments. While 66% of respondents said they were targeting both publicly and privately held companies, these companies span a wide range of industries, led by healthcare and technology. The remaining respondents’ targets were evenly spread across real estate, land resources, infrastructure and alternative investments. 
As Chinese investors, seeking to diversify amid a slowing domestic economy, send more investment capital into the US, the relationship between the two countries looks set to become more complicated. The survey results reflect many of the nuances of that relationship, but also demonstrate Chinese investors’ sanguine perspective on American politics.
 
The full report and survey results can be downloaded in PDF form here
 
O’Melveny & Myers LLP is a law firm with around 700 lawyers in 15 offices.  
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