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Investing in the United States

Is the US Ready for FDI from China?

Edited by Karl P. Sauvant

This essential book analyzes the regulatory and operational challenges that foreign direct investors face in the United States, as well as the ways in which these challenges can be overcome.
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Chapter 7: Is the US Ready for FDI from China? Lessons from Japan’s Experience in the 1980s

Curtis J. Milhaupt


Curtis J. Milhaupt* INTRODUCTION Twenty years before China became a rising star in the global economy and a major potential source of outward foreign direct investment (FDI), another East Asian country – Japan – occupied this role. Japan’s FDI flow into the United States skyrocketed from less than $1 billion annually in the 1980s to a peak of about $18 billion in 1990 alone. As a percentage of total stock, Japanese FDI in the US went from 6.2 percent in 1980 to 20.7 percent in 1990 (Kang 1997, p. 319, Table 5). This boom in Japanese FDI took place in an unsettled environment. Reactions in the United States were colored by trade friction, exchange rate controversy, cultural misperceptions, politically charged debates about the unique (and for many US observers, “unfair”) underpinnings of Japanese capitalism, and the “threat” posed to US interests by Japan’s economic ascendance. Any influx of Chinese FDI into the United States will take place against a backdrop that bears a striking resemblance to the situation two decades earlier. This chapter examines the Japanese experience of US–directed FDI, principally in the 1980s, seeking to draw lessons for China. As detailed below, the chapter focuses principally on the 1980s because this decade marked the peak of Japanese FDI in the US and concomitant political and media debate about Japanese investment. Controversy over Japanese FDI died down significantly beginning in the early 1990s, as Japan’s own economic problems caused a contraction in the overseas operations of Japanese firms.1 Thus, some of...

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