Chinese Investment in the US - Chicago Booth Emerging Markets Summit

As a second installment from the Chicago Booth Emerging Markets Summit which took place on April 27, one of the sessions focused on Chinese investment in the US. Many had anticipated a greater flow of investment flow into the US during the recession, and Chicago has been very interested in serving as a headquarters location for Chinese manufacturing and distribution with access to the entire country.

Zhao Weiping, Consul General of China in Chicago, offered a nice summary of the state of Chinese investment in the US, though expressed the concern that Chinese investors may be reluctant to act in greater numbers due to a perception that their increased investment may be politically unwelcome.

In his presentation, Consul General Zhao indicated that Chinese investment in the US has a short history - up from $2.7 billion in 2002 to $77.2 billion in 2012, for an increase of some 28 times. Here are some notable examples.

While Chinese officials are making a strong case to Corporate China that investment into the US should be increased, there is a perception among Chinese investors that the US is not open to Chinese investment, and Consul General Zhao provided several examples of investments that have been blocked.

I countered at the session and personally to Consul General Zhao that the US is actually very open to Chinese investors, that those investments that have been blocked are some of the small numbers of inbound US investments that allegedly raise national security concerns, and that the vast majority of investments coming to the US from China are of a kind and size that will encounter no resistance at the US national level and will be welcomed with open arms at the state and local level.

Moreover, I suggested that viewing US-bound investment through a lens of "government regulation/governmental review" may be understandable coming from an economy such as China with much more governmental involvement in regulating foreign investment. However, such a lens suggests much more governmental involvement in inbound investment in the US than is actually the case and may unnecessarily alarm potential foreign investors whose manufacturing, distribution and other activities are subject to absolutely no governmental regulation or interference.

Private Equity in India - Chicago Booth Emerging Markets Summit

I will be offering a few blog entries from the Chicago Booth Emerging Markets Summit, which took place on April 27.  Let's start with India, and something of a personal and subjective synopsis of the views presented by Jahangir Aziz (Chief Economist, JP Morgan India), Jai Das (Managing Director, SAP Ventures) and Archana Hingorani (CEO and Executive Director, IL&FS Investment Managers)

New investment dollars into Indian PE funds were down by 73% from 2010 ($7.7 billion) to 2012 ($2.1 billion). Over the same period, this compares with a decrease of 25% for China (from $14.5 billion to $10.8 billion) and a decrease of 6% overall for Latin America (from $4.5 billion to $4.2 billion).

For India, there is still significant dry powder for new investments and capital is still being deployed, though it is the raising of fresh funds that is down. Why? Growth in India has declined from the range of 8 - 9% to about 5%.  The Rupee has decreased in value, making dollar investments worth less than they were a few years ago. Inflation is up to about 10%.

PE's reliance on debt to help finance deals has limitations in India (though India just announced some liberalization on debt that can be raised). Exits are hard - there are few IPOs and strategic investors are selective. Private equity continues to be a challenge since most businesses are run by families that do not like to relinquish control and don't want to submit to the outside influence as the cost of taking equity. Private equity in India dates only to 1991/1992 and many are still not used to the concept of capital in exchange for ceding part control.

What about the next few years?  Some promising trends: (1) a new Indian economic team is taking growth seriously and is rapidly gaining respect, and (2) the Rupee shows signs of strengthening and could be up significantly in the next 5 years. With growth potentially on the rise and the Rupee strengthening, this puts a tail wind behind all sectors. Even without this, here is an economy still in the early stages of potential, a bit overlooked compared to China and which even now is offering a respectable 5% growth. Moreover, even the present consumer class is in the range of 250 million people, and growing.

Overseas Operations Driving Profitability. The Largest US Companies Are Benefiting - What About the Rest?

Today's New York Times offers yet another summary of how earnings growth outside of the US can be an important contributor to company performance, yet can be harder to achieve for the under-resourced next tier of companies outside of the very largest. 

Similarly, our largest clients and contacts remained committed to their global operations over the course of the recession, though the middle market and smaller companies tended to pull in their ambitions and stick closer to their home markets. While we are seeing evidence of a thaw, it is just these fast-growth markets that are ever more important in offsetting slower-growth US and European economies. 

As the New York Times article observed: 

"In fact, the case of General Electric, which reports first-quarter earnings on Friday, neatly illustrates how overseas operations at many of the most familiar American companies have grown rapidly in recent years even as domestic activity has lagged. Total employment at the company dipped slightly to 305,000 in 2012 from 316,000 in 2005, but the number of workers it employs in the United States fell more sharply, to 134,000 from 161,000 in 2005. Over the same period, the proportion of sales that came from the United States fell to 47 percent from 55 percent."