Chinese foreign direct investment into US nosedives
Chinese foreign direct investment (FDI) into the US has nosedived since President Donald Trump took office, with sectors such as real estate, autos, technology and agriculture – which have all benefited from China’s boom – losing out.
In 2016, FDI peaked at $46.5 bn but close to 90 percent of this has gone, with just $5.4 bn in 2018, according to data from Rhodium Group.
Previously, money has streamed into the US from China with places like Michigan, South Carolina, Missouri and Texas all benefitting from job growth due to Chinese investment. But Trump’s on-off trade war and the number of US tariffs have caused distrust and uncertainty between the two countries. Coupled with China’s economic slowdown and stricter capital controls for Chinese investors, this has resulted in a plummeting of investment.
Looking at the situation in more detail, Rhodium Group estimates that Chinese investors abandoned deals worth more than $2.5 bn in the US in 2018 due to new investment screening and unresolved issues by the Committee on Foreign Investment in the United States.
This position does not work both ways, however, with US FDI into China only declining slightly from $14 bn in 2017 to $13 bn in 2018. After lagging for years, China managed to overtake the US in two-way FDI for the first time in 2015 – but the balance has now shifted back to the US.
The drop in Chinese investment isn’t likely to harm the US economy significantly as a whole, but industries and states that have large amounts of investment could struggle due to their dependence on Chinese investment, notes the Rhodium study.
Still, it’s not all bad news: barely existent five years ago, China’s venture capital investment in US start-ups has continued to rise despite the trade shenanigans. Rhodium Group reveals Chinese-owned venture capital firms struck more than 270 deals in US firms in 2018 worth around $3.6 bn.
But Chinese venture capital investments in general continue to badly lag their US counterparts, with US-owned venture capital firms pumping $19 bn into Chinese start-ups last year, more than double the previous year’s record of $9.4 bn.
As a final analysis, Rhodium Group notes the decline in Chinese investment is not the end of the world for the US, with FDI flows from the UK, Canada and Japan still healthy. That said, the potential disruption of rural economies and certain industries in the US is highlighted as ‘concerning’.