Why Trump’s stance on China could stifle asset acquisitions in the US
Tighter screening of major Chinese asset acquisitions in the United States amid a more confrontational stance of the Trump administration towards China on trade and investments could keep a lid on any recovery of deal flows this year.
“Even if domestic and global macroeconomic conditions permit Beijing to loosen capital controls this year, changes on the US side may stymie a recovery in bilateral flows,” said Daniel Rosen, founder of New York-based research consultancy Rhodium Group in a recent report. “This change to a confrontational economic-security policy will almost surely sour the US-China investment climate, with negative implications for future [deal] flows.”
Even before announcing the strategy, tighter scrutiny by the Committee on Foreign Investment (CFIUS) has already stemmed transactions, resulting in an unprecedented number of delayed or abandoned Chinese deals last year.
Completed Chinese investments - both M&As and greenfield projects -into the US slid 35 per cent last year to US$29 billion, while newly announced transactions sank 90 per cent to the lowest in six years, according to Rhodium’s data.
A bipartisan effort among US politicians to strengthen the legal authorities of CFIUS and to restructure its review through the 2017 Foreign Investment Risk Review Modernisation Act could lengthen or complicate the process for Chinese outbound asset buyers.
The legislation could expand CFIUS’ jurisdiction, responsibilities and resources, giving it more latitude on the amount of scrutiny it deems necessary according to the nationality of the foreign acquirer and nature of the asset being bought.
The US is not alone in the regulatory tightening. Australia, Canada, France and Germany have changed their foreign investment review procedures since 2014, while Britain has been considering the same due to record levels of Chinese investment, increased activity by state-owned firms and “changing ideas about national and economic security,” Baker McKenzie said.