On September 17, the Rhodium Group and the National Committee on U.S.-China Relations (NCUSCR), using data from the U.S.-China Investment Project, published a report updating US-China investment trends over the first half of 2020. The Australian National University (ANU)’s Chinese Investment in Australia (CHIIA) Database also released its 2019 dataset earlier in the month. The Rhodium Group/NCUSCR report notes that while Chinese foreign direct investment in the U.S. was up slightly year-on-year (“mainly thanks to Tencent’s $3.4 billion purchase of a minority stake in Universal Music Group”), two way capital flows between the two countries are at their lowest point since H2 2011. The ANU CHIIA database reported that inflows fell 47% from 2018 to 2019. There have now been three consecutive years of declining Chinese investment into the country.
It has now been eight months since the U.S. Treasury Department released the final regulations for the Foreign Investment Risk Review Modernization Act (FIRRMA). This, as noted in a January 2020 CIUA investment blog, expands the ability of the Committee on Foreign Investment in the United States (CFIUS) to scrutinize “non-controlling foreign investments in critical technologies, critical infrastructure, or sensitive personal data, along with some real estate transactions.” The report also acknowledges that “[g]rowing bilateral tensions are pressuring firms to unravel existing investments,” including the ongoing TikTok saga. And with a hard line towards China from both sides of the American political aisle,“the systematic concerns driving caution on Chinese investment in high technology, critical infrastructure and personal data assets will not subside” in the years to come.
Australia has also moved to implement major changes to its foreign investment review regime in recent months, including new powers for the Australian Foreign Investment Review Board to block and even unwind transactions deemed injurious to national security. A multitude of factors – including Australia’s call for an international inquiry into the origins of the coronavirus, the subsequent imposition of Chinese tariffs on Australian beef, barley, and wine, tit-for-tat bans on academics, and the evacuation of two Australian journalists from China, have continued to strain Australia’s relationship with China in recent months. While CHIIA has not yet reported 2020 data, the project’s lead analyst has stated that she expects investment to fall further this year – “partly because of COVID-19 but also because the Australian investment environment has tightened.”
Taken together, the data re-confirms a broader trend of declining Chinese outward investment into Western economies since 2016. While capital outflow restrictions and other domestic factors are perhaps the primary reason for the downward shift, it is also reflective of a more scrutinous regulatory environment, an increasingly polarized global political landscape, of course, the COVID-19 pandemic.
This, however, does not mean a full decoupling of economic engagement between China and the West – despite the rhetoric espoused from certain sources. Nick Lardy and Tianlei Huang of The Peterson Institute for International Economics (PIIE) noted in a July report that foreign financial institutions are perhaps more welcome than ever in Chinese markets and foreign ownership of Chinese financial instruments is on the rise. American firms are actively investing in China (albeit at a reduced pace in 2020) and have expressed little interest in relocating out of the country. The same is true for Australia when examining its outbound investment to China (which grew by 7.7% to A$85.3 billion from 2018 to 2019). While international capital flows are predicted to plummet in 2020, the PIIE report underscores the level economic integration between the two countries. Chinese outbound foreign direct investment statistics are just one area of a vastly complex and broad economic picture.