A Primer for Chinese Investment in America

Chinese investors seeking to establish business in the United States should initially invest in minority shares of non-threatening industries that are remote from national security considerations. This strategy of picking ripe “low hanging fruit” by staying under the radar avoids traditional protectionist and security arguments against foreign investment, the author says. Challenges on those grounds are a distinct possibil-ity in industries such as electronics-manufacturing and government contracted aerospace or weaponry, par-ticularly sensitive software platform development programs, valuable natural resources and contracted se-curity enforcement companies.

Investment can be exchanged for ownership, generally represented by an instrument or “security.” Hy-brid securities involve combinations of equity and debt, such as stock with a warrant for options to pur-chase additional shares.

The most common forms of business are a corporation, a limited liability company (LLC) and a partner-ship. These come under the corporate or business laws of the state in which they are formed. Each such entity in itself has certain rights, obligations and liabilities based on those laws. Equity is stock in a corpo-ration, membership interest in a LLC, or partnership interest in a partnership.

It is important to understand that the character of income (active from operations, or passive from rents, royalties, interest, etc.) triggers different tax consequences. Also, there are a variety of hidden taxes for gifts of property, and for property present in the United States for deceased alien investors, whether, for example, resident or non-resident, married or unmarried.