The Clash of Capitalisms? : Chinese Companies in the United States

Chinese foreign direct investment in the United States has generated intense debates. Some welcome it for the immediate benefits such as job creation; others view Chinese investments, especially those controlled by the Chinese government, as a critical threat. The debates have so far missed an important question: how do Chinese companies investing in the US react to the host country's law? Ji Li formulates a novel analytical framework to examine the adaptation of Chinese companies to general US institutions and their compliance with US laws governing tax, employment equality, and national security review of foreign investments. The level of compliance varies, and this variation is examined in relation to company ownership, including state ownership. Li's analysis is based on interviews and a unique and comprehensive dataset about Chinese companies in the United States that has never been systematically explored. The Clash of Capitalisms? Chinese Companies in the United States 4 Contents 8 List of Tables and Figures 9 Acknowledgments 12 Abbreviations 14 1 Introduction 16 2 Chinese Foreign Direct Investment in the United States 26 I Four Decades of Chinese ODI 27 II Debates about the Impacts of Chinese ODI 31 III Chinese FDI in the United States 37 A An Overview of Chinese Investment in the United States 37 B Three Chinese Companies in the United States 39 1 Lenovo 40 2 Bank of China 41 3 Huawei 43 IV The Survey of Chinese Investments in the United States 47 A Surveys of Chinese Companies in the United States 47 B Descriptive Survey Data about Chinese Investments in the United States 52 1 Investment Motives 52 2 Investment Overview 54 V Conclusion 57 Appendix 58 3 Chinese Investments and U.S. Legal and Regulatory Institutions 62 I Analytical Framework for Foreign Investors’ Adaptation 63 A Relevant Legal and Regulatory Distances 63 B Desire to Adapt to Host-Country Institutions 67 1 Investment Motives 68 2 Perceptions of Host State Institutions 69 C Ability to Adapt to Host-Country Institutions 70 1 The Allocation of Decision-Making Power 70 2 Reliance on Local Knowledge 71 II How Chinese Businesses React to U.S. Institutions 72 A General Institutional Distances between China and the United States 73 B Desire to Adapt to U.S. Institutions 83 1 Investment Motives 83 2 Perceptions of U.S. Institutions 84 C Ability to Adapt to U.S. Legal and Regulatory Institutions 89 1 Allocation of Decision-Making Power 90 2 Reliance on Local Professionals 92 III Conclusion 94 Appendix 96 4 State Ownership and Chinese Investors’ Reactions to U.S. Institutions 97 I State Ownership and the Legal and Regulatory Distances between China and the U.S. 99 II The Desire to Adapt to U.S. Institutions 103 A Investment Motives 103 B Chinese MNE Managers’ Perceptions of U.S. Institutions 110 III The Ability to Adapt to U.S. Institutions 115 A Allocation of Decision-Making Power 115 B Reliance on Local Professionals 121 IV Conclusion and Introduction to Chapters 5 to 7 126 5 Chinese Companies in the U.S. Tax System 130 I Foreign Direct Investment and Taxation 132 II The Institutional Distance in Tax between China and the U.S. 134 III The Desire and the Ability to Adapt to the U.S. Tax System 139 A Perceptions of the U.S. Tax System 139 B Reliance on U.S. Tax Professionals 143 IV Chinese Companies in the U.S. Tax System 145 A Tax Avoidance 145 B Tax Audits and Disputes with the IRS 147 V The Effect of Chinese Government Ownership 149 A Opinions of U.S. Tax Institutions 150 B Tax Planning to Avoid U.S. Tax 151 C Tax Audits and Disputes with the IRS 155 VI Conclusion 160 6 Chinese Companies and U.S. Employment Law 163 I Chinese Laws against Employment Discrimination 166 II Employment Practices of Chinese Companies in Foreign Countries 175 III Chinese Companies’ Employment Practices in the U.S. 178 A Views on the U.S. Employment Market and Rules 178 B Reliance on Local Professionals 180 C Adaptation to U.S. Employment Institutions 181 IV State Ownership and Adaptation to U.S. Employment Law 187 A Opinions of U.S. Employment Laws 187 B Anti-discrimination Measures 189 C Discrimination Complaints 192 V Conclusion 195 7 Chinese Companies and the U.S. National Security Review 197 I The CFIUS Regime: The Rules and Their Enforcement 199 II Chinese Investment under the CFIUS Regime 208 A Opinions about CFIUS 209 B Reliance on U.S. Professionals 211 C Consideration and Filing with CFIUS 213 III State Ownership and Chinese Companies’ Reactions to CFIUS 215 A Perception of the CFIUS process 216 B Considering CFIUS Review When Investing in the United States 221 C Filing with CFIUS 224 IV Conclusion 227 8 Implications and Questions for the Future 230 Index 239 "Chinese foreign direct investment in the United States has generated intense debates. Some welcome it for the immediate benefits such as job creation; others view Chinese investments, especially those controlled by the Chinese government, as a critical threat. The debates have so far missed an important question: how do Chinese companies investing in the US react to the host country's law? [The author] formulates a novel analytical framework to examine the adaptation of Chinese companies to general US institutions and their compliance with US laws governing tax, employment equality, and national security review of foreign investments. The level of compliance varies, and this variation is examined in relation to company ownership, including state ownership. [The author's] analysis is based on interviews and a unique and a ... dataset about Chinese companies in the United States that has never been systematically explored."-- Back cover An important yet unexplored aspect of soaring Chinese investment in the United States is the adaptation of Chinese companies, including state-owned Chinese companies, to general US institutions, and their compliance (or lack of compliance) with US laws governing tax, employment equality, and national security review of foreign investments.