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The U.S. Foreign Investment Risk Review Modernization Act and Chinese Investment

The Foreign Investment Risk Review Modernization Act was signed into Law earlier in August 2018. The bill aims to “strengthen the Committee on Foreign Investment in the United States to more effectively guard against the risk to the national security of the United States posed by certain types of foreign investment, and for other purposes” (U.S. Congress, 2018). It gives the U.S. government the power to “scrutinise and block even small minority foreign investments into sensitive technologies” (Financial Times, 2018). It also sets in place a reporting mechanism that specifically scrutinizes Chinese investment in the U.S. China is the only state to be identified explicitly in this bill. 

This is the latest of a series of economic measures targeting China. Earlier this year, President Trump imposed tariffs on Chinese products, and threatened to step up these measures until the two sides work out what Trump described as a ‘fair trade deal’. Furthermore, President Trump has accused China of trying to ‘steal’ U.S. technology and moved to block a number of investment deals on national-security grounds, most prominently the US$117 billion Broadcom takeover of Qualcomm. Beijing’ retaliated by imposing a series of tariffs on U.S. products.

Against this backdrop, Chinese investment in the U.S. has been on the decline over the last year. After hitting a record high of US$46 billion in 2016, it 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 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 Foreign Investment Risk Review Modernization Act adds to existing tensions and will cast uncertainly on the viability of the U.S. market for Chinese investors. It is likely that the current trend of divestment and dwindling new investment by Chinese firms will continue, given strained relations between these two powers. 

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