About FDI Gateway
Over the past decade, Chinese direct investment in the United States has swelled from merely millions of dollars to a mammoth $40 billion in 2016. China is now edging into the top 10 origin countries for direct investment in the United States, according to the Bureau of Economic Analysis.
This tremendous growth has invited growing political controversy. Chinese acquisitions of U.S. firms and especially of U.S.-origin emerging technologies, as well as equity investments in American startups, have raised national security concerns and triggered new legislation on Capitol Hill. In Hollywood, meanwhile, major Chinese investments in iconic studios and theaters have raised eyebrows over the state of the American culture industry. In the industrial Midwest, Chinese employers are confronting new pressures as workers at Chinese-owned firms debate whether and how to unionize.
But if all politics is local, then investment, too, is often subject to the same principle. Location matters.
Unlike trade, which takes place at a country’s border, investment is tied directly to the specific location where an investor chooses to build a factory, hire a worker, or acquire an asset. Investors of any type need to operate within the confines of the local environment and must work with or hire local workers.
Chinese investors in America are no exception. While this topic is now subject to contentious political debate, especially in Washington, aspects of this debate can be confounding because Chinese investment in the United States is increasingly diverse and thus difficult to paint with a single brush.
As an institute based in the U.S. heartland, we have a unique perch from which to observe how distinctively local businesses, state governors, city mayors, and local economic development agencies across the United States are on the frontlines of adapting to the arrival of Chinese money. And we have focused in particular on how they can help to ensure that this money benefits local American economies.
Attracting even domestic investors can be challenging for a U.S. state; it is tougher still when a foreign investor is involved. For their part, all but the most sophisticated Chinese investors lack sufficient understanding or knowledge of individual U.S. states and cities, or how to scope opportunities and places where they might seek to deploy their capital.
For the U.S. side, many states and municipalities have minimal knowledge, at best, of actual Chinese firms and potential investors, their corporate structures, or how their capital and investment ideas may or may not complement local American economic needs.
These persistent problems of information asymmetry can raise market entry barriers. To address that asymmetry, we have leveraged our perspective and insight, as well as extensive research on investment, to offer some solutions in our new FDI Gateway.
With the launch of FDI Gateway, a free and accessible knowledge hub, we aim to offer something to both U.S. communities and companies and would-be Chinese investors. The product has two components because investment requires personal interactions between companies and local-level stakeholders.
First, the China-facing component aims to provide Chinese investors with a better understanding of the local conditions and communities in which they might invest. Second, and more important, as a nonprofit American institution serving the public interest, we have an obligation to help U.S. states and other interested parties scope out potential Chinese investors they probably have never heard of or even considered as possible partners.
Knowledge and transparency are essential if productive, job-creating cross-border investment is to become sustainable and enduring. Through this interactive and rich knowledge hub, new connections between U.S. stakeholders and Chinese investors can be established, opportunity scoping can be narrowed, and pipelines may be built.
Behind the headlines of controversial and eye-catching Chinese investments, the reality is that they are diverse and comprise an increasingly complex picture. Chinese investors are now present and visible in local American communities that span Yolo County, California to Seminole County, Florida. And these investments are not just focused on sensitive technology sectors but target “old” industries too, such as rubber manufacturing in Alabama.
Rather than relying on headline deal flow and announcements, this feature instead constructs a granular picture of Chinese investments in terms of their tangible effects on workers and local communities. Users can also easily compare one U.S. jurisdiction to another in terms of the presence of Chinese investment across several metrics, including these investments’ impact on local employment and indicators of their contribution to local economic growth.
Based on an underlying data set and built around an interactive heat map, this tool gives a detailed current snapshot of every single entity in the United States that is majority owned by Chinese companies or investors.
What distinguishes this product from existing offerings on Chinese investment are several factors. First, it offers a high level of granularity, one that is currently not publicly available. Second, it represents a detailed bottom-up picture of the current reality of Chinese investments rather than aspirational investments based on press releases or deal announcements. Third, the product uses a proprietary data set that has been updated daily in order to capture an accurate picture of the state of Chinese investments in America today.
Since many deals in fact end in failure and provide no added value, it is important that this product, to the best of our knowledge, offers a snapshot of all existing Chinese investments as of 2017, with each entity represented in the heat map employing real people and generating real economic output.*
Many Chinese investors, particularly smaller private players, simply will not be able to point to Illinois or Wisconsin on a map, just as many American businesses may not be able to tell Hubei from Hebei, or Hunan from Henan, even though these provinces are, in fact, the size of some European countries.
But when it comes to investment, location matters a lot. For Chinese investors, the first step is to acquire some understanding of the place (i.e., the state) in which to invest, as well as how one state compares to any other across key metrics.
Our FDI Gateway goes beyond a simple “fact sheet” to provide potential Chinese investors with what they must know about a particular state. This includes, but is not limited to, a state’s economic health, key industrial strengths, labor conditions, general business costs, and experiences as a recipient of foreign investment—all easily accessible through interactive maps..**
Whether searching for capital or just seeking strategic partnerships, for the uninitiated American firm, scoping out Chinese companies can be daunting. The sheer volume of firms, all of them eager to hand out business cards or WeChat handles, is overwhelming.
So the core purpose of our database feature is to help solve this initial “discovery” problem for U.S. states and firms—to initiate a “virtual handshake”—when it comes to scoping out Chinese investors and firms.
This feature is designed to help narrow the range of opportunities and facilitate a more targeted approach to the discovery of partners. In other words, we do the curating, and we do this diligently.
First, we have established specific sectors that we believe offer complementarities between U.S. and Chinese economic needs and present sizable opportunities for participants in both markets. We then ensure that all Chinese firms in the database, at the outset, are publicly listed and private firms that have been subject to our “Minimum Level of Vetting” (MLV) process.
This database, to our knowledge, is the only one of its kind that is publicly available and free for users. The number of sectors and firms in the database will be scaled up and maintained regularly until all key business sectors are covered.
Users in both the public and private sectors may wish to return frequently to find an ever-expanding roster of Chinese firms and a valuable resource for discovering and getting to know potential Chinese investors.**
*Data and Methodology
The underlying data used is called the National Establishment Time-Series (NETS). It is a time-series database of establishment information created by a commercial data provider, Dun & Bradstreet (D&B). For almost 30 years, D&B has taken regular snapshots of the U.S. economy at the firm level by collecting information such as job creation and destruction, sales, change in primary markets, and corporate affiliation, among other data. According to D&B, the collection of data is largely based on compilation of regulatory records, filings, and telephonic surveys. The company conducts over 100 million calls per year to verify and update its database. The set of NETS used in this product is up to date as of June 2017.
With the NETS data as our foundation, we engaged in an intense data cleaning and re-coding process. During this process, we identified, verified, and at times corrected the base data. This process required collecting and leveraging information from a wide array of sources that includes, but is not limited to, regulatory filings, corporate information, media coverage, Bureau of Economic Analysis, U.S. Census Bureau, and occasionally even satellite imagery.
After completing our data cleaning, we streamlined all divisions, subsidiaries, and business segments and units, among other categories, in order to determine a given corporate establishment’s most commonly known name. We also identified the establishment’s location down to the levels of street address, county, and state by cross checking against U.S. postal service records.
The base data cannot be entirely free of error either since it is partly compiled from millions of human responses and interactions, introducing some human error. Beyond these necessary caveats on data integrity, the final data set we rely on for this product is, to the best of our efforts and knowledge, an accurate representation of total Chinese investments in the United States as of 2017.
Because this data is highly specific in terms of entity and location, users in local communities are well suited to “double check” the accuracy of elements in the product. A user may well live on the same block as a featured establishment in this product, so we strongly encourage user collaboration to achieve the best possible and detailed representation of Chinese investment in America and its effects.
**Data Sources and Disclaimer
The Chinese Firms Database has been created from a wide array of sources that include, but are not limited to, the firms’ financial reports, corporate information, financial databases, equity research, legal filings, media coverage, and direct contacts. As noted above, our team conducts an MLV process that includes a close examination of the firm’s core businesses, financial performance, past and existing litigation issues, and global market experience.
We strive only to include firms with sensible business track records and outbound investment potential, according to our best assessment. We cannot guarantee the quality of every single Chinese firm in our database, since it is solely based on open source information and meant to be generally useful to interested parties.
The state profiles have been created from open sources that include, but are not limited to, Bureau of Economic Analysis, World Bank, Bureau of Labor Statistics, U.S. Census Bureau, Department of Labor, Department of Transportation, and other federal agencies.
We have also consulted resources from independent research institutes such as the Carnegie Classification of Institutions of Higher Education and the Tax Foundation. State governments and related state-level investment and economic development agencies also contributed to this product as our partners.
MacroPolo is strictly a nonprofit, thus these products are not intended to serve as professional investment advice in any way.
We hope you find FDI Gateway useful, and we welcome your feedback and suggestions on how to improve this product.