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Chinese Investment in the U.S. Drops Dramatically in 2017-2018

After hitting a record high of US$46 billion in 2016, Chinese foreign direct investment (FDI) in the U.S. dropped by 35% in 2017 to US$29 billion, according to data collected by the Rhodium Group (data from the American Enterprise Institute suggests that this decline could be as large as 55%, from US$53.7 billion in 2016 to US$24.2 billion in 2017). In addition, Chinese investors have divested at an unprecedented pace: during the first two quarters of 2018, US$9.6 billion worth of assets were sold off in the U.S and another US$4 billion are pending sale.  In the first half of 2018, “Chinese companies only invested $1.8 billion in greenfield projects and acquisitions in the U.S., a drop of 92% from the same period in 2017 and the lowest half-year figure in seven years” (Rhodium Group, 2018). 

The decline in Chinese FDI into the U.S. can be partially be explained by Beijing’s recently imposed capital outflow restrictions. According to data collected by the American Enterprise Institute, Chinese FDI in 2017 decreased by 2.16%, compared to 2016’s total.  Canada has also been impacted: as demonstrated in the China Institute’s 2017 Year End Report: Chinese investment flow into Canada declined by 9% from CA$7.5 billion in 2016 to CA$6.8 billion in 2017. 

President Donald Trump’s recent imposition of tariffs on China, and Beijing’s subsequent retaliatory measures, have also cast uncertainly on the viability of the U.S. market for Chinese investors. Likewise, President Trump’s rhetoric regarding Chinese investment in the technology sector as a threat to national security has caused insecurity and uncertainty for investors about the future of technology firms operating in the U.S. This is cemented by Trump’s decision to block a number of deals since taking office, most prominently the US$117 billion Broadcom takeover of Qualcomm. Emerging reports from Washington indicate that his administration may permanently block Chinese FDI in the high tech industry.

Chinese investment in the U.S. is expected to decline further in the short-to-medium term amid the escalating trade war between the U.S. and China. It is likely that the current trend of divestment and dwindling new investment by Chinese firms will continue, given strained relations between these two power. 

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