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China Investment Monitor: Methodology Update

by Thilo Hanemann | July 21, 2015

The China Investment Monitor (CIM) is a dataset that aims at providing a comprehensive picture of Chinese direct investment transactions in the United States. It currently covers the period from 2000 to the present. The data is updated on a quarterly basis and made available to the public in aggregate form, together with commentary on recent patterns, specific transactions, and policy developments.

background

Chinese FDI in the United States has grown rapidly over the past decade, yet there is a lack of reliable, real-time data sources to track this trend. Official data often exhibit a 1-2 year time lag and do not capture major trends, due to problems such as significant round tripping and trans-shipping of investments.

The goal of the CIM database is to offer an alternative perspective on Chinese direct investment in the US by providing an accurate and real-time assessment of trends to policy leaders, executives, and the general public in both China and the US, leading to better policymaking and understanding of opportunities and risks. The data are compiled from a transactional approach which relies on collection and aggregation of data based on individual transactions, including acquisitions, greenfield projects, and expansions. The database provides an aggregated headline figure as well as various metrics of interest.

coverage

The CIM database tracks FDI transactions by ultimately Mainland Chinese–owned firms in the United States. In accordance with common international standards, FDI transactions are defined as greenfield projects or acquisitions of stakes in existing companies that exceed 10% of voting shares. Expansions of existing facilities and joint ventures where Mainland Chinese–ownership equals or exceeds 10% are also recorded.

Portfolio investment transactions (debt or equity stakes of less than 10%) are not included, which accounts for some differences between the CIM database and other sources. The CIM only counts investments in physical assets in the US. In other words, reverse mergers and Chinese firms listing their assets in US markets are not recorded.

Only completed transactions are recorded, while pending and promised transactions are excluded. Completed transactions refer to acquisitions that have been closed, and greenfield and expansion projects that have commenced. Large, multi-year greenfield projects over $100 million are recorded incrementally. In other words, only the portion actually invested during a specific quarter is recorded.

As there are hundreds or even thousands of small-scale FDI transactions every year that are impossible to follow, the minimum value for individual deals included in the database is $500,000.

Data Compilation

The CIM database is compiled from a transactional approach, where RHG identifies and collects information on individual transactions that meet the above criteria. The data mining relies on a wide range of different channels, including commercial databases, online search algorithms, media reports, regulatory filings, company reports, industry associations, official statistics, investment promotion agencies, industry contacts, and other sources.

Acquisitions are added to the list at the date of their completion and greenfield projects are added at the date of project commencement when there is evidence available that the project has broken ground or started.

The deal values are recorded based on either the officially announced investment value or the most convincing analyst estimates; total deal values for M&A transactions include both equity investment and assumption of debt. We do not distinguish between domestic and foreign financing for the deal value. Transactions without reliable values are recorded in the database with our best estimate based on similar projects.

Each transaction is coded with additional variables such as headquarters location of the Chinese parent company, employment, geographic location, or ownership of investing company. For ownership, we apply a conservative threshold that requires 80% or more private ownership in order to qualify as private enterprise. Employment data is retrieved directly from company sources or estimated based on similar transactions, revenue, and other data points. Each deal is then assigned an industry category based on the main activity of the US subsidiary, using an industry category system derived from the Standard Industrial Classification (SIC).

The geographic location refers to the state and city which the headquarters of the US subsidiary resides in. For each transaction, the full investment value is logged at the headquarters location.

data dissemination and updates

The CIM database provides aggregates of annual values for FDI transactions calculated from simple aggregation of single investments. This is different from the “stock” concept in official FDI statistics, which are often adjusted for market price fluctuations in equity or for depreciation. The data is updated quarterly, with each update also providing details on various metrics of interest, such as ownership and employment.

During each update, past deals and existing operations are screened again in order to ensure that changes in investment amount, employment, or other relevant metrics are captured in the newest version of the database. Our data is therefore never final, but instead subject to constant updates.

data use and comparability

The CIM dataset provides a real-time perspective on Chinese FDI transactions in the United States. By recording investment flows from a bottom-up perspective, several problems commonly related to balance of payments data are avoided (most importantly the significant time lags and distortions resulting from extensive use of pass-through locations). This makes the dataset a useful alternative for a real-time assessment of aggregate investment patterns, as well as the distribution of those investments by industry, modes of entry, geographical spread, and ownership.

However, the data resulting from this transaction-based approach are not directly comparable to FDI statistics compiled according to Balance of Payments (BOP) principles. The transactions data capture the total value of investment projects by Mainland Chinese–companies in the US, but do not distinguish between financing from China and domestic sources. They also do not take into account intra-company flows between a Chinese parent and US subsidiary if they are not related to a new establishment or expansion of an existing operation. As such, the transactions data cannot be used to analyze BOP-related problems and other topics that require a national accounting perspective.

New Neighbors Data

In addition to the China Investment Monitor, RHG maintains a separate dataset that provides an operations-based perspective on growing Chinese investment in the US, with a particular focus on congressional districts. The dataset, summarized in the “New Neighbors” Report, presents three metrics for each congressional district: aggregate Chinese investment, the number of Chinese-affiliated operations at the end of 2014, and the number of jobs they directly provided at that point in time.

Compared to the China Investment Monitor, the New Neighbors dataset provides a more detailed picture of the geographic distribution of Chinese FDI by breaking down all US companies with at least 10% Chinese ownership into the individual subsidiaries level instead of logging investments at headquarters locations, like in the CIM dataset. The New Neighbors dataset also includes major investments that took place before 2000. Conversely, the data were also updated to reflect closures and divestitures of assets during the period covered.

The CIM dataset tracks new investments in real-time and is updated on a quarterly basis. The New Neighbors dataset examines the geographic spread of Chinese companies in the US by congressional district and is updated once a year.

The New Neighbors dataset offers the most comprehensive and detailed snapshot currently available of Chinese-affiliated companies in the United States. It provides a starting point for understanding and discussing the local impacts of Chinese FDI, and for tracking progress and new trends in the future. Detailed data from the report and future updates of the dataset are available on here.