The U.S.-China trade conflict has done great damage to the global economy, stunting investments across the world. In America, Chinese investments have dropped steeply as a result. Beijing’s increasing restrictions on foreign investments have also played a role in the decline.
According to the Rhodium Group consultancy, Chinese investment in U.S. assets was at the lowest level in seven years as of 2018. Last year, Chinese companies invested just US$4.8 billion in the United States. This is a far lower number than in previous years, with investments recorded at US$29 billion in 2017 and US$46 billion in 2016. The downward plunge of investments is expected to continue this year.
“The pipeline of pending Chinese investments in the U.S. is at a 5-year low, and most hurdles weighing on China’s U.S. investment are poised to persist or deepen,” Rhodium Group said in a statement (South China Morning Post).
Chinese investments are just one part of the picture. When one looks at the value of assets sold off by the Chinese, the situation appears even more grim. Last year, almost US$13 billion worth of U.S. assets were liquidated. The U.S.-China trade war has resulted in so much confusion that investors are unwilling to bet on foreign assets while the tension remains.
The United States administration passed a series of laws last year seeking to limit Chinese investments in critical technology sectors. This is also believed to have played a role in the investment decline. “Government officials, and especially the Department of Defense, have grown alarmed as Chinese firms, many either state-owned or with connections to the Chinese Communist Party, have poured money into advanced technologies such as artificial intelligence and drones,” according to Foreign Policy.
Plus, the Chinese government has also been trying to restrict companies from investing abroad so as to prevent large-scale capital outflows. As such, it is estimated that US$20 billion worth of American assets will be liquidated by Chinese investors this year.
“My experience is that on an informal basis it’s creeping into everything… For us — digital media, travel tech — frankly rather benign consumer-oriented businesses, we see people on both sides self-censoring,” Matthew Doull, head of the internet and digital media practice at BDA Partners in Hong Kong, said to South China Morning Post.
Chinese President Xi Jinping is expected to meet U.S. President Trump by the last week of March to discuss and finalize a trade deal. But even if an agreement is reached and the conflict comes to an end, market experts believe that the trade relationship between the two nations will never be the same again.
New FDI rules
Beijing is introducing a new set of rules for foreign investments into the country. The law seems to address U.S. concerns of intellectual property (IP) theft and the requirement for international corporations to enter into a joint venture with local companies to do business in China. It also promises to minimize the preferential treatment given to Chinese firms when awarding government contracts and the large subsidies given to local companies that end up putting foreign businesses at a disadvantage.
Partial investments in nuclear power, oil and gas exploration, public health, airlines, and airport operations will be allowed. However, 48 sectors have been blacklisted as areas where foreign direct investment (FDI) is not allowed. These include genetics, television broadcasting, fishing, religious education, and so on.
Normally, it takes several years to pass a new law in China. U.S. pressure seems to have forced legislators to draft the FDI law in just three months. It is expected to be enforced soon. However, the European Union Chamber of Commerce in China has raised concerns at the speed at which the law is being processed, arguing that it gives no time for foreign companies to chime in with their opinions.