Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
whether restrictive visa policies are the most effective way to address these issues, particularly
when the restrict U.S. access to the best global talent.
Chinese investment in the Bay Area is still mostly in commercial and hotel property, angel and
venture investment in Silicon Valley technology companies, and small-scale retail. A few investments
have made headlines, such as the $1.05 billion purchase of San Francisco’s Bank of
America Center by a Hong Kong investor group in September 2005, and Hong Kong-based
Cornerstone Overseas Investment’s acquisition of Emeryville toymaker Wham-O Inc. in
January 2006. China National Offshore Oil Co. (CNOOC)’s bidding war with San Ramon-based
Chevron Corp. for Unocal Corp. drew the most attention, following on the heels of Lenovo’s
acquisition of IBM’s PC manufacturing unit and the competing bids by Haier and Maytag
for Whirlpool.
“Greenfield” investments in new plants and office parks, along with corporate mergers and acquisitions,
have up to now been largely one-way—from the U.S. to China. That may soon
change, however. Cumulative Chinese overseas investment at the end of 2005 totaled $57.2 billion,
according to China’s Ministry of Commerce. Chinese direct investment overseas during
2005 totaled $12.26 billion, a 123% increase over 2004. Chinese consumer goods and technology
firms may spend as much as $80 billion in overseas investment in 2005–06. Sitting on close to $1
trillion dollars in foreign reserves, China’s government is giving the green light for its companies
to invest abroad, and in the coming years they will be looking for complimentary mergers and
acquisitions, strategic partnerships and equity investments that will help them build global brands
and distribution networks, and access markets and technology. This presents an opportunity for
the Bay Area.
This road may prove bumpy at times as some transactions are likely to raise security or intellectual
property issues, including questions about the so-called “deemed exports” of technology
through shared personnel and data within a merged entity.
In the course of conducting interviews and other research for this report, a number of ideas surfaced
for ways to expand and add value to the Bay Area-China relationship. While not exhaustive,
proposals focused in two main areas: strengthening U.S. and Bay Area competitiveness by
influencing federal and state policies with respect to education, immigration, and funding for
research; and leveraging the Bay Area’s distinct assets to increase trade and attract even more
China-related business and investment in the future.
Strengthening Economic and Technological Competitiveness
China’s growing economic and technological capacity will pose both opportunities and new
challenges for U.S. and Bay Area technological leadership. Its assertion of a greater global role
will require a nuanced approach to the U.S.-China relationship, to take account of rising competition
as well as opportunities for cooperation. In that evolving relationship, it is critical that the
U.S. and California invest in and leverage their competitive strengths: