Cross-border investments between US and China drop to lowest level in nearly a decade
- Direct and venture capital investments totalled just US$10.9 billion in first half of 2020, report finds
- Pressures unlikely to let up in the year’s second half, with political tensions expected to remain harsh regardless of who wins US presidential election
Investment between the United States and China in the first half of the year dropped to the lowest level in nearly a decade amid escalating political tensions and economic fallout from the Covid-19 pandemic, a new report has found.
For the six months ended June 30, total capital deployed through direct and venture capital investments fell to an estimated US$10.9 billion, from US$26 billion at its 2016 peak, according to the report by Rhodium Group and the non-profit National Committee on US-China Relations.
Moreover, a single purchase accounted for the lion’s share of the US$4.7 billion directly invested by Chinese companies into the US – when the tech giant Tencent paid US$3.4 billion in March for a minority stake in Universal Music Group.
The fall-off reflected the increasingly restrictive policies the Trump administration adopted toward Chinese investment, particularly in the tech industry, the report’s authors, Thilo Hanemann and Adam Lysenko of Rhodium, said.
Venture capital investment, which largely focuses on tech-driven start-ups, was severely affected, the report found, with total Chinese investment in the US falling to a six-year low of US$800 million.
The heavy headwinds Chinese investors have encountered are unlikely to let up in the second half of 2020, the authors said: policies towards China are expected to remain harsh leading up to the presidential election in November. The pressure is also unlikely to decrease even if the Democratic candidate Joe Biden defeats US President Donald Trump.
A Biden administration, however, might help reduce aggressive decoupling measures, which could help investments in non-strategic sectors like consumer goods, entertainment, health care and commercial real estate, according to the report.
Direct investment by US companies in China dropped to US$4.1 billion during the first six months this year as well, although several large acquisitions are moving forward, including JP Morgan’s US$1 billion deal to take control of its Chinese mutual fund joint venture. ExxonMobil’s US$10 billion petrochemical complex and General Motor’s electric vehicle push are both on track.
US venture capital investment in China totalled US$1.3 billion in the first half of the year, a notable drop in early-stage funding amid a broader slowing of tech deals and the fallout from the pandemic.
Over all, American investors have encountered less aggressive Chinese investment policies, the report said; China’s response to US restrictions has so far been restrained, though that could change should the relationship continue to worsen.
China tech firms embrace inward economic pivot
While investment activities remain anaemic, recent surveys show that American and Chinese companies continue to be committed to each other’s markets despite Trump’s stated intent to “decouple” the countries economically.
As many as 90 per cent of more than 1,000 Chinese executives operating in the US said they expected their investments in the US would either remain the same or grow over the next year, according to an annual survey released last week by the China General Chamber of Commerce.
American businesses also showed similarly strong commitment towards Chinese markets; just 4 per cent of about 1,400 companies said they were planning to move any production out of the country, an American Chamber of Commerce study showed last week.
Chinese investments in US dip to lowest level since 2009
The majority of US companies “are in China for China”, Jake Parker of the US-China Business Council said. “They’re there to access the Chinese domestic consumers. They’re not really using China’s export platform to the United States.”
The surprising business optimism from both sides is a bright spot in the bilateral relationship between the world’s two largest economies as tensions continue to rise in fronts from trade and technology to finance and military to immigration and human rights.
Executives, however, have grown more pessimistic about the trade tensions. The number of respondents expecting the trade relationship to remain stressed rose to about 25 per cent from about 17 per cent a year ago, the US Chamber survey showed. And 78 per cent of Chinese executives said their businesses had been negatively affected by the trade tensions, the CGCC found.
China watchers cautioned that a recovery in deal-making may grow even harder if both countries continue to cite national security reasons to hamper cross-border investments.
“Obviously, as the largest market in the world, American companies very much want to stay in and try and conduct as much business as possible” in China, Max Baucus, a former US ambassador there, said last week.
But “both countries have weaponised national security,” said Baucus, stoking “increased nationalism” and leading “public opinion in both countries to be more opposed to the other country.
“That needs to be addressed.”
