Interview with Dr. Daniel H. Rosen, Economic Advisor Specializing in US-China Relations--Part I
Is it reasonable for U.S. businesses to expect mergers and acquisitions activity and investments from Chinese businesses? Our posts of July 10 and 13 highlighted a policy brief on China’s Changing Outbound Foreign Direct Investment Profile published by the Peterson Institute for International Economic and written by Daniel H. Rosen and Thilo Hanemann. Dr. Rosen agreed to respond to questions that we posed regarding China’s approach to mergers and acquisitions and other direct investments in the U.S. Part I of our interview follows.
Dr. Rosen is an economic adviser specializing in China’s commercial development and writes and speaks extensively on US-China economic relations. He is the Principal of Rhodium Group, a specialized practice helping decision-makers analyze and understand commercial, economic and policy trends in Greater China. He is a graduate of the Graduate School of Foreign Service at Georgetown University and the Department of Asian Studies at the University of Texas, Austin. He is a Member of the Council on Foreign Relations and the National Committee on U.S.-China Relations. He is the author of Behind the Open Door: Foreign Enterprises in the Chinese Marketplace.
Your recent policy brief addressing China’s changing outbound foreign direct investment (OFDI) makes a strong case for an expectation of increased OFDI. In fact, you write that China’s OFDI is at an inflection point and that the geographical distribution of OFDI will shift toward the OECD countries. Do you expect OFDI into the United States to accelerate?
Rosen: Yes. Wherever Chinese producers are already OEMs or producers in value chains that lead to the US, they should be expected to move up and down those value chains toward US assets.
What are the characteristics of those American businesses that would be most attractive as investments for Chinese strategic investors?
Rosen: Complementarily to Chinese capabilities, low price, non-union.
How important is the price level for those businesses? Are distressed U.S. assets attractive to Chinese investors as an investment class?
Rosen: Price is important to Chinese firms, but not if it reflects extremely complicated situations. China has little ability to work-out regulatory, labor or legal complexities, and so will tend to avoid them, or else have to rely on co-investors to deal with them.
At various times in the past, both strategic and financial buyers have acquired or invested in U.S. companies. How close are we to a time when Chinese financial buyers, as opposed to strategic buyers, will acquire U.S. businesses?
Rosen: I think Chinese investment will be weighted toward strategic buyers who can generate value through expanded scope for a long while. Financial investors from China have little ability to add value in the US.
You have written about the imperative for China’s firms to capture a greater share of the production chain. The 2005 Lenovo transaction with IBM was a precursor of this type of transaction. Do Chinese businesses and the Chinese government perceive the Lenovo transaction as a model to be followed?
Rosen: Lenovo is still considered an exceptional case, involving exceptional entrepreneurship. Even still, it is not considered a home run in terms of performance. It is a healthy example of the real, normal business challenges that will arise in even better Chinese forays abroad.
Part II of the interview with Dr. Rosen will be posted on August 3, 2009.
