U.S. direct investment in China

Abstract

The trade relationship between the United States and China is a complex one with both real and perceived problems. U.S. officials have expressed concern, for instance, about perceived problems of bilateral trade imbalances and greater market access. U.S. Direct Investment in China focuses on one aspect of U.S.-China trade relations - direct investment - and dispels some of the perceived problems. Using new data time series on investment and trade, the authors argue that U.S. direct investment in China benefits both countries. Among the benefits to the United States is access to the Chinese market. The authors show that, in 1993, U.S. firms in China sold 80 percent of their output directly to customers in China. Furthermore, U.S. direct investment in China also increases trade between the two countries and should significantly enhance China's economic growth in the long run. Contrary to the public's perception, the new data in the Fung, Lau, and Lee study demonstrate that U.S. direct investment in China does not take jobs away from U.S. workers. After investing in China, almost 90 percent of U.S. firms in China maintained their level of production in the United States and almost 40 percent expanded output at home. The authors also note that U.S. firms in China produced different products from those of their parent companies.

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