Tens of billions of dollars of Chinese investment could flood into the United States in the next decade, creating a multitude of American jobs if officials do not succumb to a political backlash and throw up barriers, according to a report released on Wednesday.

The study forecast Chinese companies would unleash some $1 trillion to $2 trillion in new greenfield investments or mergers and acquisitions around the world by 2020.

That would be a four- to eight-fold increase of China's current outward investment of about $230 billion, according to the report done for the Asia Society, the Kissinger Institute on China and the United States and the Woodrow Wilson International Center for Scholars.

If just 5 percent of China's expected outflows target the United States over the coming decade, the numbers will be enormous, the report's authors, economists Daniel Rosen and Thilo Hanemann, said.

The coming wave could cause even more political heartburn than happened in the early 1980s, when Japanese companies began making substantial investments in the United States.

But U.S. policymakers should keep an open door to Chinese investment and the potentially huge job-creating benefits by shielding the U.S. system for reviewing foreign investments from political interference, Rosen and Hanemann said.

Japan's first investments in the United States during the 1980s were almost as controversial as China's but in the following years, Japanese U.S. affiliates put $1 trillion into America and today employ nearly 700,000 Americans, they said.

The report, released ahead of high-level talks between U.S. and Chinese officials in Washington next week, urged the U.S. Congress and the White House to send a clear bipartisan message that Chinese investment is welcome in the United States.

China is already the biggest foreign buyer of U.S. government debt with holdings of more than $1.1 trillion as early 2011. But U.S. statistics showed just $2.3 billion in Chinese direct investments in companies with operations in the United States at the end of 2009, the report said.

That is approximately 0.1 percent of the $2.3 trillion in total foreign direct investment, or FDI, in the United States.

China's share is less than many smaller countries such as Mexico, Saudi Arabia, South Korea, Brazil and India and dwarfed by the biggest foreign investors in the United States, such as Britain, Japan and Germany, the report said.

However, Chinese investment in the United States already is increasing, likely rising by more than $5 billion in 2010 and supporting more than 10,000 American jobs, the report said.

U.S. companies have about $50 billion invested in China, compared to the low level of Chinese investment here.

Many Chinese companies are wary of investing in the United States because of the political outcry caused by some previous high-profile forays, such as Chinese oil company CNOOC's unsuccessful attempt to acquire Unocal in 2005.

Much of that has to do with an incorrect suspicion held by many U.S. officials that because China has so many state-owned enterprises, market forces and profit motives do not necessarily apply in that country, Rosen and Hanemann said.

Therefore, they suspect that if a Chinese firm is coming to America, it must be for some political purpose rather than simply to make money. This conclusion is wrong and if we are to maximize U.S. interests, such misapprehensions must be corrected, they said.

The United States, through its inter-agency Committee on Foreign Investment in the United States, should continue to carefully inspect individual Chinese investment deals for potential national security concerns.

But Washington should not play the reciprocity game by linking approval of Chinese investment projects to China opening its market to more U.S. companies, the report said.

The United States should welcome capital from China, regardless of Beijing's state planners have to say about foreign investment in China, the report said.

For 30 years, China has grown stronger by opening its door wider to FDI, irrespective of overseas openness. The United States should do the same, or risk Chinese firms setting up plants in Ontario instead of Michigan or Juarez instead of El Paso, the report said.

(Reporting by Doug Palmer; editing by Bill Trott)

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