Chinese offshore investment

Chinese investment in US, Europe set to slow in 2017 after doubling last year

Greater regulatory scrutiny in China and abroad will weigh on the outlook for this year, say analysts

PUBLISHED : Monday, 06 February, 2017, 2:22pm
UPDATED : Monday, 06 February, 2017, 11:36pm

Combined Chinese direct investment in the advanced economies of North America and Europe more than doubled in 2016 to a new record of US$94.2 billion, according to figures released by Baker McKenzie on Monday.

But a tightening of capital controls in both China and several host nations means the outlook for this year is more uncertain, analysts warned.

Foreign direct investment (FDI) flows rose a combined total of 130 per cent from the previous record of US$41 billion, set in 2015. Acquisitions accounted for 97 per cent of the total, Baker McKenzie announced in the report.

The law firm’s study also found that for the first time since 2013, Chinese investors poured more money into North America (US$48 billion, up 189 per cent) than Europe (US$46 billion, up 90 per cent), with the US accounting for 94 per cent of the North American total.

“However, the outlook is mixed as 2016 also saw 30 cancelled deals (20 in Europe, 10 in the US), worth

an unprecedented US$74 billion,” the report said.

Chinese companies and Chinese tourists both are concerned that they won’t feel welcome in the US any more. They’re scared that Trump will target them and target China
Shaun Rein, China Market Research Group

Michael DeFranco, global head of M&A at Baker McKenzie, said: “The deal pipeline is strong in both Europe and North America, but political and regulatory uncertainties are weighing on the outlook. A short term slowdown in new deals is likely in 2017.”

Shaun Rein, managing director of China Market Research Group, said he expected outbound investment from China into the United States to drop sharply in the first three to six months of 2017.

“First, the capital controls are very serious. Right now Chinese companies are hesitant to make an acquisition overseas because they’re worried that they won’t be able to get the approval to convert for foreign exchange. That situation should get better in general as fears of a currency collapse are alleviated,” he said.

Fears that President Donald Trump may implement trade policies that target China will also weigh on investment, Rein said.

“Chinese companies and Chinese tourists both are concerned that they won’t feel welcome in the United States any more. They’re scared that Trump will target them and target China,” he said. That, in turn, would boost investment into other markets like Europe and Australia.

Will Trump’s assault on Chinese currency trigger a full-blown trade war?

Since November, China’s monetary authority has imposed a series of policies to stem capital outflows. Cross-border payments using both yuan and US dollar have been placed under stricter scrutiny, while banks have been urged to intensify their checks on overseas acquisitions and to impose rules to make it more difficult to take yuan abroad.

President Trump’s frequent past accusations that China has gained an advantage over the US by manipulating the currency rate has fuelled the possibility of a trade war.

The vast increase in outbound Chinese investment was led by privately owned companies, the Baker McKenzie study found. This outpaced investment by state-owned enterprises to close deals accounting for 70 per cent of the total.

Chinese overseas investment reached US$170 billion in 2016, 44.1 per cent higher than 2015 and double the amount invested in 2012, data released by China’s Ministry of Commerce last month shows.