China recently became the world's second-largest economy and has emerged as the world's largest exporter and second-largest destination for foreign direct investment (FDI). In the past two years, China alone has contributed 16 percent of global GDP growth. Yet despite its rapid economic rise, China lags in one important area: outbound foreign direct investment (OFDI). China's OFDI has grown rapidly, but it remains relatively low—lower even than that of Ireland and Singapore. Historically, the United States has garnered approximately 15 percent of total global OFDI flows, yet currently it receives only 2 percent of China's OFDI.
President Barack Obama's meetings in February 2012 with Xi Jinping, China's vice president and soon-to-be leader, provide an opportunity to address this issue and establish an economic framework to help rebalance the global economy. Creating a positive economic framework will help mitigate the inevitable stresses on the U.S.-China relationship as leaders in both political parties sharpen their anti-China rhetoric during the 2012 U.S. election. China's outward investment has substantial room to grow, and the United States has the potential to capture a larger share of it—an outcome that would benefit the U.S. and Chinese economies and strengthen the bilateral economic relationship. China could be transformed into a large overseas investor, not just an exporter. At the core of that framework should be an unequivocal policy of fostering additional Chinese investment into the United States, so long as particular investments do not compromise U.S. national security interests.
The Council on Foreign Relations (CFR) is an independent, nonpartisan membership organization, think tank, and publisher.