Why U.S. Accountants and Tax Advisors Need to Focus on China



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Why-US-Accountants-And-Tax-Advisors-Should-Focus-On-China

Corporate Investment

China recently became the world's second-largest economy and has also emerged as the world's largest exporter. Chinese investments in U.S. businesses, all but non-existent fifteen (15) years ago, now total nearly $50 billion and could reach $200 billion by the end of the decade.  Chinese investors have bought or created 1,583 U.S. companies through December 2015 that now employ 80,600 full-time workers, a fivefold increase in the last five (5) years.

The Committee on Foreign Investment in the U.S. (CFIUS) shows China in the top spot for the third year in a row.  China's rise to the top of the CFIUS ranking results primarily from the increase in the number of Chinese acquisitions from an average of 13 in 2006-2009 to 43 in 2010-2013, doubling to 100 in 2014 and 103 in 2015.  The greater prominence of Chinese transactions demonstrates the sharp uptick in Chinese deal making activity in the U.S. and a shift of that interest towards technology.  

Another factor contributing to the growth in Chinese deals is the shift in size and industry target composition.  Previously driven by a few large-scale energy deals, Chinese foreign direct investment in the U.S. has become more diverse and now targets U.S. tech assets, including personal computers and semiconductors.  While CFIUS remains an important regulatory hurdle that Chinese investors have to clear for U.S. acquisitions, the vast majority, even with increased volumes, pass reviews without any problems. This is illustrated by the skyrocketing number of successfully completed deals across a wide spectrum of industries.   The following chart shows the most notable recent acquisitions made by Chinese companies in 2015-2016:



More than $1 trillion of FDI (foreign direct investment) is projected to flow from China into the global economy by 2020, which could prove extremely economically beneficial for the recipients.  For example, in Alabama, Golden Dragon Precise Copper Tube Group revived the region by building a $100 million manufacturing facility that employs three hundred (300) workers.  In West Los Angeles, Chinese company Tencent Holdings Ltd bought a majority stake in Riot Games, which produces the popular "League of Legends" computer game, in 2011 for $250 million.  In eastern Virginia, Shuanghai International Holdings of Hong Kong spent $4.7 billion to buy Smithfield Foods Inc., the largest U.S. pork producer with 3,700 employees.  In Chico, California, Chinese-based Alibaba Group is employing one hundred thirty (130) people at its U.S. retailer, 11 Main Inc. Chinese conglomerate Dalian Wanda purchased a majority stake in AMC Entertainment Holdings, Inc., the large movie theater chain owner, in Leawood, Kansas for $2.6 billion as well as the Robinsons-May department store in Beverly Hills, California.  Downtown LA also hosts two major mixed retail and residential complexes built by Chinese developers, Greenland Group's Metropolis project and Oceanwide Real Estate Group's Fig Central with a total investment of $2 billion. Recently, the Alibaba Group executed an investment deal with Snap Chat for $200 million, and the Anbang Insurance Group purchased the Waldorf Astoria hotel.

Educational Investment

Education plays a significant role in Chinese decisions to buy American real estate.  Chinese students comprise the largest group of international pupils, buoyed by a growing Chinese middle class who are willing to pay top dollar for their children's educations. At the university level, Chinese students now make up 31% of international students in the USA, with many students attending universities in the Midwest now.  In 2004-2005, only 62,623 Chinese nationals were studying in the United States.  In the 2014-2015 academic years, more than 304,000 Chinese students were enrolled in U.S. colleges and universities, a fivefold increase from a decade earlier.  One way to track enrolled students is by F-1 visas, the most commonly issued student visa, and are a strong proxy for the Chinese enrollment numbers.  The Top 10 institutions that have issued F-1 visas to Chinese students are listed below:

1.    University of Illinois-Champaign
2.    University of Southern California
3.    Purdue University
4.    Northeastern University
5.    Columbia University
6.    Michigan State University
7.    Ohio State University
8.    UCLA
9.    Indiana University
10.    University of California, Berkeley

Conclusion

As the global economy progresses, the strong ties currently being forged between China and the United States via corporate and educational investment will serve both countries well.  While trade is a valuable bond between sovereign nations, mutually-assured prosperity, by means of investment, is perhaps the strongest economic bond available.  The United States and China will be partners, and competitors for years, so developing the skills to collaborate and work together are essential. In the educational system, the mingling of perspectives from incoming Chinese students and U.S. students will build bridges between both countries by engendering critical and independent thinking, promoting diversity and integration, and building commonality that can be relied upon in adulthood and future business dealings.

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Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.