Chinese investors ‘facing severe situation in the US’

  • Rating of US as investment destination for Chinese firms falls 10 places to 14th out of 57 countries rated
  • Chinese government think tank now sees US investment environment as on par with Russia and Poland
PUBLISHED : Thursday, 10 January, 2019, 10:34pm
UPDATED : Friday, 11 January, 2019, 7:58am

Chinese firms have been warned that the investment environment in the United States is rapidly deteriorating in a report that also called for more government protection for the country’s increasing overseas interests.

In its sixth annual report evaluating country-specific investment risks, the Institute of World Economics and Politics, a government think tank under the Chinese Academy of Social Sciences, ranked the United States investment environment as number 14 out the total of 57 countries, a drop of 10 places from a year ago.

The institute also gave the world’s largest economy an “A” rating, the third highest tier, meaning investment risks are “moderate”. Other countries that fall into that category include Poland and Russia.

Zhang Ming, who led the research for the institute, attributed the downgrade to the trade war that started last July as well as a number of deep-seated problems.

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These included growing US concerns about national security, the now-repealed ban on the sale by US companies of components to ZTE and the scuttling of some landmark Chinese investments in the US.

“The US situation is very severe [for Chinese investors],” he said. “The Foreign Investment Risk Review Modernization Act of 2018 endorsed by President [Donald] Trump will have a big impact on mergers and acquisitions. The outlook for Chinese investment in the US is not positive.”

The report also pointed out that the policies of the Trump administration have divided American society, causing its social environment score to drop accordingly.

The US is China’s largest trading partner and has been a major destination for its outbound investment.

But Chinese investment in the US shrank sharply to just US$29 billion in 2017 from a record high of US$46 billion a year earlier, largely as a result of Beijing’s curbs on “irrational investment” by large Chinese companies.

The phrase referred to private investment in overseas properties, hotels, sports clubs and entertainment venues at high prices, according to data from the New York-based research group Rhodium.

The tighter review of Chinese deals in the US, especially those by hi-tech and state-owned buyers, caused investment to plunge to a seven-year low in the first half of 2018.

Chinese companies completed acquisitions and greenfield investments worth only US$1.8 billion in the period, a drop of more than 90 per cent from a year earlier, Rhodium data showed.

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Data from the Chinese Ministry of Commerce does not provide a country-by-country breakdown. Overall outbound Chinese direct investment, at US$104.5 billion, was roughly the same in the first 11 months of last year as it was in the same period a year earlier, it said.

On Wednesday, Beijing and Washington concluded their first face-to-face trade negotiations since the 90-day trade truce agreed by Chinese President Xi Jinping and US President Donald Trump on December 1.

The vice-minister level talks did not generate a concrete deal or even a joint statement, despite the Ministry of Commerce saying that it believed the talks brought an agreement before the March 1 deadline a step closer.

“The US will raise more questions during the process and the game-playing will continue,” Zhang said.

Wang Bijun, the co-author of the institute’s study, said developed countries are generally lower-risk investment destinations than emerging economies, but their score for relations with China – assessed according to six indicators, including investment barriers, trade dependency and political ties – was generally low.

For instance, despite Germany consolidating its lead as the best investment destination as the only country with a “AAA” rating, its score for Chinese relations ranked only 24th.

For Australia, which ranked No 2 overall on the list, was only 42nd in terms of Chinese relations.

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The state researchers suggested in the report that Beijing should accelerate bilateral investment treaty talks with the European Union to institutionalise protections for Chinese investment there.

On the other hand, investment risks remain high in the 35 countries now taking part in the Belt and Road Initiative, where the Chinese authorities have tried to push for more investment, the institute said.

Pakistan, for instance, dropped by 11 places to 41st, due its internal conflicts, while Uzbekistan declined 11 places to 44th due to low economic growth and high inflation.

Iraq and Venezuela remained at the bottom of the investment risk evaluation list.