May 22, 2013 at 10:58 AM ET
Although all the news about Chinese investment in the U.S. has focused on the deals that don't get done, Chinese investment in the U.S. is at an all-time high.
The Chinese are making headlines around the word for hungrily acquiring energy and resource companies in countries such as Canada, Africa and Latin America.
In the United States, the single largest Chinese investment to date is far more mundane: movie theaters. And to a large extent, that type of acquisition explains the broader story about China's strategy when it comes to U.S. investment.
AMC Theaters, previously owned by a group of U.S. private equity firms, is now a division of Dalian Wanda of China—a huge entertainment conglomerate that spent $2.6 billion in 2012 on the theater chain.
It's no accident that the largest U.S. purchase so far is for a company as non-controversial as AMC. Chinese businesses—many of them government-owned—have repeatedly been rebuffed by the U.S. government when trying to buy American firms that control natural resources or advanced technology.
Despite all the negative headlines, Chinese investment in the U.S. hit an all-time record in 2012: $6.5 billion. It will likely surpass that level in 2013, according to Rhodium Group, which does detailed tracking of Chinese investment. The Heritage Foundation says the U.S. was the single biggest recipient of Chinese overseas investment last year, eclipsing Australia for the first time.
"We are in the midst of a structural growth story that will transform the China-U.S. investment relationship from a one-way street into a two-way street," says Thilo Hanemann of Rhodium.
CNBC profiled three Chinese-owned companies in the U.S. in order to explore what kind of deals and investments are getting done, and the motivations behind them.AMC Theaters, International Vitamin Corporation, and China Construction of America represent a cross-section of Chinese-owned firms.
Jianlin Wang, chairman of Dalian Wanda, which bought AMC, wants his company to reach $100 billion in revenue by 2020, up from the current $30 billion. While his home market China is the fastest growing movie market in the world, he'll still need overseas acquisitions to achieve his goal.
"The acquisition of AMC is just the start," says Wang, and "probably before the end of the year we may complete one or two more deals." He says he expects to spend another $7 billion in the U.S. by the end of this decade.
International Vitamin Corporation, of Freehold, N.J., came into being after a Chinese company bought the vitamin assets of Inverness Medical from private equity in 2010. CEO Steven Dai says the investors (he's one of them) have pumped "upwards of hundred millions of dollars into the company," since then—improving its IT backbone, expanding warehouse capacity, and increasing the number of employees from 280 to 400, all in the U.S.
(Read More: Will China Buy Up Greece's Best Assets?)
Dai, the only Chinese employee, says buying an American company made the most sense because the U.S. has a highly developed, multi-billion dollar, nutritional market "which constantly grows every year."
Of the three companies that spoke to CNBC, the one with the longest history in the U.S. is China Construction of America, a wholly owned subsidiary of China State Construction Engineering Corporation (CSCEC) that had $500 million in revenue in 2012. Although publicly traded in Shanghai, CSCEC shares are majority owned by the Chinese government, making China Construction of America part of what's known as a State-Owned Enterprise.
China Construction set up shop here in 1985 because the U.S. was the world's largest construction market at the time. Why are they still doing business here, when China is now larger and growing faster? Geographic diversification, CEO Ning Yuan tells CNBC, in case the home market falters.
The company has been successful at bidding for state-level and municipal projects such as public schools in South Carolina and New York State transportation projects such as the $407 million Alexander Hamilton bridge rehabilitation.
But Yuan expressed frustration at not being able to qualify for larger federal projects—what are known as "P3s"—Public Private Partnerships. The U.S. Department of Transportation requires companies to become prequalified before bidding on P3s. Despite numerous attempts, Yuan says they've never been prequalified. "I think that's happened not only to a Chinese company but also to some other foreign companies," he said. "I would say that it is a little bit political."
That may be true. Firms owned by the Chinese government are perceived as having unfair advantages, such as access to cheaper financing from Chinese banks, which are also government-owned. Yuan rejects the notion, saying Chinese banks charge them market rates that are comparable to any other multinational bank.
While there may be critics at the federal level, the mood is the opposite at the state level. New Jersey's lieutenant governor has visited IVC's headquarters, and has asked CEO Dai to speak to other visiting Chinese executives to convince them to invest in N.J. as well.
Chairman Wang says that while members of Congress may be worried, officials at the state, city and municipal level "are quite welcome to Chinese investment, because such investment can create job opportunities and boost economic development."
To be sure, even though Chinese investment is at a record level, it is still relatively small compared to the size of the U.S. economy. According to the Heritage Foundation, total Chinese investment in the U.S. since 2005 stands at $54 billion, compared with an overall wealth stock in the U.S. of $60 trillion.
The Heritage Foundation marks the starting point of China's overseas acquisitions with the 2005 purchase of IBM's computer business by Lenovo for $1.74 billion. Not only was it a transformational transaction for IBM, it heralded the arrival of the Chinese investor.
But 2005 also marks the year of the highest-profile rejection of a Chinese purchase—when CNOOC (China National Offshore Oil Company) tried to purchase Unocal of California for $18.5 billion. The mere announcement of the deal created so much Congressional controversy that Unocal accepted a lower bid rather than risk U.S. government rejection of the CNOOC offer.
China has never again attempted such a large energy acquisition in the U.S. even though it has done numerous major energy deals elsewhere in the world.
In the U.S., Chinese energy investments have been limited to minority stakes and joint ventures, including Sinopec's $2.2 billion investment last year in some of Devon Energy's venture plays, and a $1 billion investment for part ownership of some of Chesapeake's shale gas properties.
In 2012, President Obama rejected a Chinese purchase of four Oregon wind farms due to their proximity to a U.S. naval drone-testing site. Additionally, a congressional report last year eviscerated two Chinese telecom companies eager to do business in the United States, Huawei & ZTE; members of Congress came very close to accusing the two firms of spying on behalf of the Chinese government.
The next key moment comes when AIG, the insurance company, finds out if it will be allowed to sell most of its aircraft leasing arm to a Chinese consortium for $4.8 billion. The deal was announced in December, and if finalized, would eclipse the AMC theater purchase.
The Committee on Foreign Investment in the United States, the government agency that vets foreign deals for security concerns, has yet to sign off on it.