Coming amid the escalating trade war between the US and China, many were quick to blame the collapse in Chinese investments in the US on tensions surrounding protectionism. And indeed, according to research firm Rhodium Group, China’s direct investments in the U.S. plunged in the first half of 2018 as Chinese companies completed acquisitions and greenfield investments worth only $1.8 billion, a 92% drop over the past year, and the lowest level in seven years.
The reality, however, is that this has little to do with the Chinese trade spat, and everything to do with China’s crackdown on outbound M&A and conglomerate “investments” which as we said back in 2015, were just a thinly veiled scheme to cover capital outflows.
Rhodium confirms as much:
The rapid decline in Chinese FDI in the U.S. was driven by a “double policy punch” — Beijing cracking down on rapid outbound investment and the U.S. government increasing scrutiny on Chinese acquisitions through the Committee on Foreign Investment as well as taking a more confrontational stance toward economic engagement with China in general.
The investment tracker is based on collection and aggregation of data on individual transactions, including acquisitions, greenfield projects, and expansions.
Whatever the reason behind the sharp drop, however, it doesn’t change the fact that there has been a recent collapse in recycled Chinese capital back into the US. And, while it may not have caused it, Trump’s recent change in trade policy will certainly make future Chinese direct investment far more problematic. As Bloomberg notes, “lawmakers and the White House are planning fresh curbs on Chinese investment.” Furthermore, as we reported earlier, a just released White House report claimed that China’s spectacular economic growth “has been achieved in significant part through aggressive acts, policies and practices that fall outside of global norms and rules.”
As Thilo Hanemann, a Rhodium direct said, “the more confrontational approach of the Trump administration toward economic relations with China has cast some doubt, in these companies’ minds, about their position here.”
The first-half slump follows a 35% drop in 2017, and if the sale of assets is taken into account – as Chinese investors sold $9.6 billion of US assets in the first five months of 2018, mostly driven by deleveraging pressures from Beijing – the net investment flow is negative. And with former high-profile acquirers such as HNA Group Co., Anbang Insurance Group Co. and Dalian Wanda Group Co. putting their assets up for sale, it will be a long time before China’s serves as a source of direct capital in the US again.