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~------------------------------~ United States Direct Investment in China: Basic Facts and Some Policy Issues Leonard K. Cheng INTRODUCTION In this chapter, I shall focus on the investment relation between China and the United States. A description and analysis of the statistics of US direct investment (01) in China will be presented,! to be followed by a discussion of some policy issues and areas of disagreements between the two sides in the investment arena. It is useful to point out at the outset that investment and trade relations are closely related and are different facets of the overall economic relations between the two countries. As we shall see, as a source country of foreign direct investment (FOI) in China, the United States is less important compared with its role as China's trading partner. Up to the end of 1993, the US cumulative 01 accounted for 6.5 percent of all contracted FOI and 8.6 percent of all realized FOI in China, making it a distant second to Hong Kong and Macau.2 Its shares of contracted DI and realized DI in 1992 were 5.4 percent and 4.6 percent, respectively.3 According to Chinese statistics, in 1992 about 10 percent of Chinese exports went to the United States, making the US market the third largest export market for Chinese products. In the same year China bought about 11 percent of its imports from the United States. However, a substantial portion of China's exports to Hong Kong was ultimately bound for the United States,4 making the US market much more important than Chinese statistics has indicated. The US market has been an important factor behind the exportoriented FOI in China, regardless of whether the investment was made by US firms or firms from other areas such as Hong Kong and Taiwan. Indeed, according to US statistics imports from China in 1992 were about three times the Chinese figure. US exports to China as recorded in Chinese statistics were only slightly larger than as recorded by the US. This is consistent with the fact that a much smaller percentage of US exports to Hong Kong ended up as reexports to China.s 106 Leonard K Cheng STATISTICS ON US DIRECT INVESTMENT IN CHINA Data Sources The data on US direct investment used in this chapter

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