Slowing Chinese Economy Drives Accelerated Investment in the U.S., New Report Says

February 16, 2016

O’Melveny Releases Foreign Direct Investment Report 2016

  • Decreasing growth, easing regulation fueling capital outflow
  • Many Chinese investors view U.S. as most attractive investment market 
  • CFIUS, litigation likely seen as biggest impediments 

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 U.S., according to a survey released today 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 a wealth of insights into foreign investors’ perceptions of the advantages and challenges of foreign direct investment in the U.S.

“We’re poised for a significant increase of Chinese investment in the U.S for two reasons,” said Larry Sussman, Managing Partner of O’Melveny’s Beijing office. “On the one hand, the Chinese rightly see the U.S. 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 U.S. as the world’s most attractive market for investment, citing the potential for growth as its strongest attribute. Yet while 38 percent of respondents perceived the U.S.’s regulatory regime as an attractive attribute, 48 percent viewed it as the greatest barrier to investment.

That seeming contradiction actually paints an accurate portrait of the U.S. market, according to Steve Olson, Los Angeles O’Melveny partner and former Executive Director of SelectUSA, the U.S. government program 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 U.S. face a high rate of litigation.”

The report also depicts Chinese investors’ newfound desire to pursue higher returns through diversified investments. While 66 percent 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 U.S., the relationship between the two countries will undoubtedly 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 here.

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