Please work on the review taking into account the guidelines and the rubrics attached. Complete the template. Don?t forget the general remarks on the bottom of the page (around 1/2 page)

2 CHINESE DIRECT INVESTMENTS Abstract For being the number one and number two largest economies in the world they are doing surprisingly relatively few investments in each other's countries. Only about 1% of Chinese and U.S. total foreign direct investments are placed in the respective countries. Over the last decade however, things are starting to change. More investments are flowing over the Pacific Ocean and raise interesting questions and data to investigate. This research paper focuses on Chinese investments into the United States. It presents an overall quantitative picture of how levels of investments during the last couple of years. It aims to collect information based on the questions; what types of FDIs is the Chinese conducting in the U.S.? What industries are they focusing on? The main theories connected to FDI are presented and later investigated how well they can be applied to the trends in Chinese FDI. In the conclusions of the research, the author makes final remarks to what future implications an increasing level of Chinese FDI can have on the U.S. economy. Keywords: Foreign Direct Investments, China, the United States economy, internationalization. CHINESE DIRECT INVESTMENTS 3 Table of contents Abstract 2 Introduction 4 Method 6 Results 7 Discussion and conclusions 12 15 References CHINESE DIRECT INVESTMENTS 4 Introduction and theories Foreign Direct Investments (FDI) is investments in equipment, structures and organizations by a company in a foreign country. The investments have to be at a level that is sufficient to obtain significant management control (Ball, 2013 p. 492). A company is considered to be a FDI when 10% or more of the voting securities of the company are held by an organization that does not have its headquarters in the same country (Morrison 2011). Mere foreign investments in the stock market are not considered to be FDI (Ball, 2013 p. 492). In order to explain FDIs further I will introduce the four leading theories connected to these types of investments. It will help to understand motives and future economic impacts in the U.S. The monopolistic advantage theory is a result from research showing that FDI occurs mainly in oligopolistic industries rather than industries that compete in nearly perfect conditions (Ball, 2013 p. 54). An oligopoly is much like a monopoly but a few firms, at least two, control the market (Investopedia, 2003). The oligopolistic industries must have a certain advantage that local firms does not have in order to overcome the liabilities associated with conducting business outside your home market. These liabilities could be lack of knowledge of the local market, higher costs when operating at a distance and also differences in culture, law, language, regulations and institutions. These could give a foreign company a disadvantage against a local firm. The foreign company must instead have the advantages of economies of scale, superior technology or better knowledge in marketing, management and finance. FDI occurs since these products and factor market imperfections, which creates an opportunity for these types of firms to operate more profitability in foreign markets than can local competitors (Ball, 2013 p. 54). CHINESE DIRECT INVESTMENTS The internationalization theory is based on the thought that a company may have superior knowledge and they have to minimize the risk of sharing that information with the market (Ball, 2013 p. 55). The theory explains how a company can minimize the risk by not licensing. Instead they should invest in a foreign subsidiary in order to keep knowledge within the company and still be able to send sensitive information across borders (Ryszard, 2014). The third perspective is the \"Dynamic capability\". It argues that access or ownership of certain knowledge is necessary but not enough in order to succeed in FDI (Ball, 2013 p. 55). The success depends on the firm's ability to deploy, utilize, diffuse and rebuild resources that are specific to that firm. All in order to attain a sustained competitive advantage (Shenkar & Luo, 2008 P.72). The final theory is one of the most accepted and cited theory of FDI currently. The Electric theory of international production tries to give an overall framework to why firms decide to engage in FDI instead of settling to serve foreign markets only through other alternatives such as exporting, licensing, management contracts, joint ventures or strategic alliances. The theory explains that if a firm is going to invest in production facilities in a foreign country they need to have three kinds of advantages (Ball, 2013 p. 55). 1. Ownership specific. To what extent can the firm say that they have or can get advantage thorough tangible and intangible assets? These are assets that are not available to other companies and can be transferred abroad. The three basic types of tangible or intangible ownership specific advantages are knowledge or technology, economies of scale or scope, and monopolistic advantages connected to the unique access to critical input or output. This will generate lower costs or revenues (sometimes both), which will cover the cost associated at a distance in a foreign country (Ball, 2013 p. 55). 2. Location specific. The new foreign market needs to have certain political, social or economic characteristics. The market size, different barriers or 5 6 CHINESE DIRECT INVESTMENTS transportation costs decide if the firm will be more profitable when locating instead of exporting to that country (Ball, 2013 p. 55). 3. Internalization. A firm can enter a foreign market in different ways, ranging from arm's-length market transactions to a wholly owned subsidiary. It is better for the firm to exploit its ownership specific advantages through internalization where the market does not exist or not functioning. This will cause the transaction costs of using market-based arm's-length options to be too high (Ball, 2013 p. 55-56). This research paper aims to discuss how Chinese FDI connects to the leading theories presented. In order to test this I will research the following questions; what types of FDIs is the Chinese conducting in the U.S.? What industries are they focusing on? This will be the base of a discussion about the possible future impact on the U.S. economy. Method The empirical research will be based on quantitative data that show China based company's activities in the U.S. In order to collect more information and make more accurate conclusions the paper will also conduct a literature review of recent studies made on the topic. 7 CHINESE DIRECT INVESTMENTS Results Looking at all FDI made in the U.S. during 2014 China is ranked as the number 14 largest inward investor. In total, $2,419 million dollars were invested from China during 2014, which is 33% less than the previous year and a lot less compared with many smaller (population) countries. But between the BRICS countries China is still the largest investor in the U.S. $236 billion was the total investment inflow in the U.S. during 2013, which means that China accounted for about 1% of the total investments (Foreign Direct Investment in the United States 2014 Report, 2014 p. 56). Both U.S. and Chinese total outward FDI it is only about 1 % of each country's FDI that is invested in China respectively the U.S. The numbers are however, compared to only 10 years ago, a lot higher (Fan, Kanbur, Wei & Zhang, n.d. p. 118). From a global perspective, about 20% of combined global FDI is done into the U.S. and 10% into China. One of the reasons why China has not invested a larger share in the U.S. is the need to secure natural resources. Relative to its population, China does not have enough resources and has therefore pursued opportunities to settle that need by making investments in developing countries in Asia, Latin America, and Africa (Dollar, 2015). CHINESE DIRECT INVESTMENTS 8 The American research firm Rhodium Group shows a trend shift in Chinese U.S. FDI transactions for the first half of 2015. 80% of deals and total investment value came from private investors compared to just 20% five years ago, which means that positions are switched between state-owned and private firms (Figure 5). Rhodium Group sees two significant trends with the private firms. First, large institutional investors and conglomerates stand for a big share of the investments and they are for the first time taking part in large real estate developments. Second, many small private equity and real economy companies buys into U.S. growth companies (Hanneman & Gao, 2015). CHINESE DIRECT INVESTMENTS 9 An optimistic view of FDI is that it usually builds new factories and creates jobs in the country where the investment is being made. Looking at Chinese investments this picture is not necessarily true. A substantial amount of the investments are being made into properties and if it were not for Lenovo's accusation of Motorola, the real estate segment would be the largest Chinese direct investment sector in the U.S. This has been a global trend by Chinese investors during the last five years and besides the U.S. the have focused on London, Hong Kong and Singapore. Chinese real estate investments are commonly in the residential sector, but commercial property deals are increasing. According to interviews conducted by U.S.-China Economic and Security Review Commission with industry professionals it is common for investors to \"practice\" the market before they take on own greenfield projects. By doing this they get more familiar with the market, judicial aspects and the tax system. The Chinese often use their first investment as a base for further expansion (Koch-Weser & Ditz, 2015 p 8-10). CHINESE DIRECT INVESTMENTS 10 As seen in Figure 3, Information and Communications Technology (ICT) stood for almost half of total Chinese transactions in 2014, which is significantly more than previous years. A large explanation is the Lenovo purchase of Motorola, but also a series of smaller deals. According to Rhodium Group, who keeps track of all Chinese FDI, food and pharmaceuticals/biotech are two sectors that have a big momentum in recent months. During 2015 reports emerged about another large acquisition in the making. A Chinese company put a bid on the U.S. chipmaker Micron and if the deal goes through or not it is, according to Rhodium group, a sign of Chinese increased activity in the ICT sector (Hanneman & Gao, 2015). According to Deng Ping at Maryville University, investors from China are looking for resources, technology, market diversification and strategic assets overseas. These assets should benefit the firm's competitive advantages. FDI accelerated when investors decided that China's domestic resource assets were perceived as incompatible with their development strategies. This dissatisfaction with domestic resources pushed investors to look elsewhere (Deng, 2007). Calculations say that U.S. jobs have tripled in Chinese linked companies since 2013. Studies show that Chinese investments have positive effects on the overall U.S. economy based on the variables; wages, jobs and research spillovers. Main criticism against Chinese investments in the U.S. has been related to the domestic energy sector and sustainable technology. Critics have also pointed at Chinese acquisitions of advanced technology enterprises both general and those linked to Chinese domestic interests. These types of acquisitions have triggered security concerns in some U.S. industries. The purpose of the U.S. Foreign Investment and National Security Act of 2007 and the responsibility of the Committee on Foreign Investment in the United States (CIFUS) are to monitor FDI activity and relate it to national security. CIFUS only covers acquisitions and not greenfield projects, but since most Chinese investments are acquisitions they are covered by the regulations (Walcott, 2014 p. 294). CHINESE DIRECT INVESTMENTS 11 An interesting study by Susan Walcott at the University of North Carolina tested the hypothesis that place-based advantages strongly influence the location choice of Chinese companies. The study looked at three southern U.S. states and investigated if companies within the same industry clustered. It concluded that North Carolina is very heavy in the Chinese owned furniture industry, South Carolina leans to manufacturing and Georgia has a significant Chinese services component. Some of the concluded reasons for this are the existence of other nationality-affiliated firms and the state's openness to international presence. (Walcott, 2014). CHINESE DIRECT INVESTMENTS 12 Discussion and conclusions The research shows that China is, so far, putting a small share of total investments into the U.S. The amount invested has increased significantly in the last decade Foreign Direct Investment in the United States 2014 Report, 2014 p. 5-6) and will probably continue to do so in the future. About 70 % of Chinas outward FDI is today placed in Asia, which indicates that companies are more comfortable investing in markets that are more alike and where the foreign relations are more stable (GarcaHerrero, 2015) and also to secure natural resources (Dollar, 2015). The trend with investments in resources also shows in the U.S. where the energy sector received the largest amount of total Chinese investments between 2010-2013. Most of those investments have gone into the development of renewable solar and wind power plants and this is where we can start making connections to the theories. The Chinese solar industry relies on the international market for 95% of its sales. This connects to the internationalization part of the Electric theory of international production, where the Chinese solar industry enters the U.S. market by opening up new plants and gaining shares of this growing market. The same goes for the Chinese wind turbine industry, which today relies on the Chinese domestic market but wants to expand to new markets through FDI (Zhao, 2013). The strategy of building their own energy plants could also possibly be explained by the internationalization theory. The companies may have knowledge that they would not like to share to the outside and minimize risk by not licensing (Ryszard, 2014). The research found that Chinese companies are investing into the real estate market. I think the explanation given by U.S.-China Economic and Security Review Commission (2015) for this is both interesting and probably accurate. The Chinese and other Asian markets are different from the U.S. and investors buy already established projects as a practice ground instead of starting out with a greenfield project. They invest in order to acquire more knowledge of the market and will use the investments as a base for future greenfield projects. If this is true, we will see continued growth of Chinese real estate investments. CHINESE DIRECT INVESTMENTS 13 The empirical data collected in the research suggest that recent Chinese investments in the U.S. market are done in order to acquire knowledge and technology. We clearly see that three sectors have grown recently; real estate, ICT and Pharma & Biotech. A large movement in the ICT sector was Lenovo's acquisition of Motorola. Lenovo is not a company that I would explain as either an industry leader or owner of superior technological knowledge compared to other industrial companies. Therefore I would not say that the electric theory of international production could explain the Lenovo case or other investments that has occurred recently. Dynamic capabilities are company's ability to quickly integrate and reconfigure resources in order to adapt to a changing environment. Literature on dynamic capability stresses the key role of knowledge resources, which are critical in the quest of gaining competitive advantages (Chien & Tsai, 2012). It suggests that the recent developments and types of Chinese FDI follow the theory of dynamic capabilities and more specifically acquire research, technology and market knowledge. So what does the future hold? The research shows a trend movement from stateowned firms to private firms making investments in the U.S. The investments have gone from the energy and agricultural sector, in line with the internalization theory, to investments in the ICT, Pharma & Biotech and Auto industries, likely to improve dynamic capabilities. The study from Susan Walcott (2014) showed that Chinese acquisitions attract even more investments and create clusters of Chinese owned companies. It is of course impossible to say what future impact Chinese FDI may have on the U.S. economy but it is obvious that investments in U.S. companies, factories, greenfield projects create American jobs. We all recognize the discussion of American jobs being outsourced to different parts of the world and increasing number of investments may work as a counter weight to this, only with the difference that these jobs will be more knowledge based and continue to develop the workforce. Critics have pointed towards possible security threats with Chinese companies investing in advanced technology. U.S. Foreign Investment and National Security Act of 2007 and the responsibility of the Committee on Foreign Investment in the United States (CIFUS) are to monitor FDI activity and the research shows that this has probably been sufficient until now. However, CIFUS only covers acquisitions and, as CHINESE DIRECT INVESTMENTS 14 concluded, greenfield projects will become more common in the future. This could possibly give more credibility to the critics and likely broaden the U.S. surveillance over FDIs (Walcott, 2014 p. 294). This research paper has given an overall picture of Chinese FDI into the United States and also explained the main acknowledged theories regarding FDI. It is mainly limited since it mainly looked at quantitative data and recent research conducted on the subject. The current Chinese economic uncertainty that may change the way Chinese companies conduct FDI creates a limit on how many conclusions one can make based on current information. Chinese FDI in the U.S. has grown mainly during this millennium and has changed a lot during these few years. The short data-span and changing trends put limits on this type of research, but can hopefully serve as a basis for further in-depth qualitative research. CHINESE DIRECT INVESTMENTS 15 References Ball, D. (2013). International business. New York: McGraw-Hill/Irwin. Bea.gov,. (2015). U.S. Bureau of Economic Analysis (BEA). Retrieved 19 October 2015, from http://www.bea.gov/iTable/iTable.cfm? ReqID=2&step=1#reqid=2&step=10&isuri=1 &202=1&203=23&204=1&205=1&200=2&201=1&207=49,48,43,42&208=1&209= 85 Chien, S., & Tsai, C. (2012). Dynamic capability, knowledge, learning, and firm performance. Journal Of Orgchange Mgmt, 25(3), 434-444. http://dx.doi.org/10.1108/09534811211228148 Deng, P. (2007). Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies. Business Horizons, 50(1), 71-81. http://dx.doi.org/10.1016/j.bushor.2006.07.001 Dollar, D. (2015). Why so little investment between the United States and China?. The Brookings Institution. Retrieved 20 October 2015, from http://www.brookings.edu/blogs/up-front/posts/2015/02/26-investment-between-usand-china-dollar Fan, S., Kanbur, S., Wei, S., & Zhang, X. The Oxford companion to the economics of China. Foreign Direct Investment in the United States 2014 Report. (2014) (1st ed., pp. 1-8). Washington D.C. Retrieved from http://www.ofii.org/sites/default/files/FDIUS2014.pdf Garca-Herrero, A. (2015). China's outward foreign direct investment | Bruegel. Bruegel.org. Retrieved 28 October 2015, from http://bruegel.org/2015/06/chinas- outward-foreign-direct-investment/ Hanneman, T., & Gao, C. (2015). Rhodium Group Chinese FDI in the United States: 1H 2015 Update. Rhg.com. Retrieved 19 October 2015, from http://rhg.comotes/chinese-fdi-in-the-united-states-1h-2015-update Hanneman, T., & Gao, C. (2015). Rhodium Group Chinese FDI in the United States: Q4 and Full Year 2014 Update. Rhg.com. Retrieved 20 October 2015, from http://rhg.comotes/chinese-fdi-in-the-united-states-q4-and-full-year-2014-update Investopedia,. (2003). Oligopoly Definition | Investopedia. Retrieved 16 October 2015, from http://www.investopedia.com/terms/o/oligopoly.asp Koch-Weser, I., & Ditz, G. (2015). Chinese Investment in the United States: Recent Trends in Real Estate, Industry, and Investment Promotion (1st ed.). U.S.-China Economic and Security Review Commission. Retrieved from http://www.uscc.gov/sites/default/files/Research/Ch%20invt%20paper_2%2026%201 5.pdf CHINESE DIRECT INVESTMENTS 16 Ryszard, B. (2014). Strategic Management :: The Internalization Theory. Applications-of-strategic-management.24xls.com. Retrieved 16 October 2015, from http://applications-of-strategic-management.24xls.com/en125 Shenkar, O., & Luo, Y. (2008). International business. Thousand Oaks, Calif.: Sage Publications. Walcott, S. (2014). Capitalist China Comes to the Southeastern United States: Localizing Foreign Direct Investment in the Carolinas and Georgia. Southeastern Geographer, 54(3), 291-307. http://dx.doi.org/10.1353/sgo.2014.0024 Zhao, Y. (2013). Why Is China Investing So Much in U.S. Solar and Wind?. Wri.org. Retrieved 28 October 2015, from http://www.wri.org/blog/2013/06/why-chinainvesting-so-much-us-solar-and-wind Peer Review - IB 625 International Financial Management Fall 2015 Introduction A peerreview offers an opportunity for the students to get actively involved in collaborative learning. Student assess one another's work by using explicit criteria. The feedback is provided to the peer. The process should be informative for the reviewing and the feedback receiving student. The aim is to improve student learning while reviewing and to offer the fellow student additional feedback (Pearce et al, 2009). Benefits Feedback is an essential part of the learning process. Effective feedback can motivate us, change behavior and improve learning (Liu and Carless, 2006; Rubin, 2006; Biggs and Tang, 2007). This is true for students and teachers. Through engaging in peer review and receiving feedback from peers you are also exposed to a greater diversity of perspectives than just those of your tutor or lecturer. In our case (IB 625) it is the evaluation of the teacher and one peer. For me as your teacher peer reviewing is also a way of ensuring that all of you receive feedback from at least two sources with regard to your research. You can then use this feedback to improve your work and for your self reflection area of your learning portfolio. Studies have also shown that students very rarely have the opportunity to see the work of fellow students. Running a peer review should therefore provide a useful insight how differently research and writing of research papers can be conducted. The literature on this topic points out additional benefits in the range of social and communication skills such as verbal or written communication, negotiation skills, diplomacy and giving and accepting criticism (for example Topping et al., 2000). The process of reviewing Please read the requirements for our IB 625 research papers as provided at the end of this document. You should then read and annotate your peer's research paper. After having gone through the paper twice, prepare the peer review by checking the rubric of the peer review template and by drafting general comments. Feedback should always include praise for the positive aspects of the paper as well as highlighting the weaknesses. If you run a peerreview for the first time you might be overwhelmed. But the key here is \"learning by doing\". You are all in the same position. If you respect your peer's work and provide helpful comments the student receiving the feedback will gain from this kind of feedback. In detail: Be specific. Point to particular places in the paper where requirements or analysis is very well fulfilled/conducted and particular places where this is not as well fulfilled/ conducted. Don't hesitate to respond as a reader, for example, I found this confusing / I got confused here. I saw your point clearly here. I was convinced by your example or analogy or argument. Make comments in spirit of helpfulness. Take comments in spirit of helpfulness. Peer Reviewing with the Template provided Work on the excel sheet \"Peer Review\" by using the rubrics listed. Please take following points into account: Critical analysis of how and why you evaluate the criteria as indicated. Evidence in the research paper linked to your comment / evaluation (you could list a page number or mention a paragraph/exhibit). Depth and specificity of comments. Clear organization following the rubrics. Engaging and comprehensible style. The listed points are at the same time the evaluation criteria for this grading component. Deadline The peer review has to be completed and handed in by December 6th, 2015. I will then read through it and provide it to your fellow student. Please let me forward the evaluation as I would like to make sure that you have followed the procedure outlined and provided constructive feedback. Requirements for research papers as outlined in October 2015 1012 pages including title page and references. The references should include at least two peer reviewed articles. You should have an idea about the current academic discussion with regard to your topic. Use a typeface that is easy to read (Times New Roman, Arial, Calibri or Courier). Use 1.5 space, font size 12. Use one citation style throughout the whole document. I prefer Chicago Style. Using a different one but consistently is ok as well. Touro College Graduate School of Business International Financial Management Fall 2015 - Prof. Dr. Birgit Wolf 2 Please take into account the following points in working on your paper: 1. Find a title for your paper. 2. Your paper should have six parts: a. b. c. d. Title page Abstract Content list with mentioning pages where chapters start Elements of main body: introduction to the topic, explaining research method, state of the art of topic, research work, results, conclusion/summary/limitations e. Acknowledgements and references f. Appendix if necessary Tips for main body of research paper Introduction Explain the theoretical background (theories, current research, state of the art ...) Explicitly formulate your research question which follows your ideas of work still to do in your research area. Method Did you do a literature review (which is probably the case for this research paper) or did you do empirical work? Results Present the main results: What did you find? Present graphics of your data and statistics if possible. Graphs/diagrams help to understand the results. Are the results as expected? Conclusion/Summary/Limitation Condense and discuss the implication of your results. Connect the results to the statements of the introduction. What is the limitation of your research Touro College Graduate School of Business International Financial Management Fall 2015 - Prof. Dr. Birgit Wolf 3 List of References Biggs, J. and Tang, C. (2007): Teaching for quality learning at university (3rd edition), Berkshire, Open University Press. Liu, N. and Carless, D. (2006): Peer feedback: the learning element of peer assessment. Teaching in Higher Education 11(3), pp. 279290. Pearce, J., Mulder R., Baik, C. (2009) Involving students in peer review, Case studies and practical strategies for university teaching, Centre for the study of higher education, The University of Melbourne. Rubin, R. S. (2006): The academic journal review process as a framework for student developmental peer feedback. Jounal of management Education, 30(2), 378398. Topping, K., Smith, E.F., Swanson, I. and Elliot, A. (2000): Formative peer assessment of academic writing between postgraduate students. Assessment & Evaluation in Higher Education 25(2), pp. 149169. Touro College Graduate School of Business International Financial Management Fall 2015 - Prof. Dr. Birgit Wolf 4 Research Paper - Peer Evaluation Title Paper: 1/2/3/4 are the general categories overall, but you should also provide an feedback with regard to the criteria below. 0. Example 1. Critical Thinking Analysis Expertise in field Originality of thought 2. Comprehensiveness Clear argumentation All relevant information used 3. Clarity and Organization Title page Abstract Content list incl. pages Elements of main body Acknowledgements and references 4. Professionalism Adherence to academic standards Quality of sources Range of sources General Remarks Excellent Good X Poor Remarks Explanation which parts you maybe found excellent, poor and good and argumentation why you evaluate this category to be good overall as marked in the columns left of this box