US-China cross-border investment drops to lowest level since 2009

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Investment between the United States and China last year fell to the lowest level since 2009 amid the Covid-19 pandemic and rising geopolitical tensions.

The investment between the two countries dropped to US$15.9 billion in 2020, falling to less than a quarter of US$70 billion invested during the 2016 peak, according to a report issued on Wednesday by Rhodium Group and the National Committee on US-China Relations (NCUSCR).

“Bilateral investment has not continued along the trajectory we saw years earlier and, arguably, neither nation’s economic interests have been particularly well served,” said Stephen Orlins, president at NCUSCR.

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US capital invested in China dropped by roughly a third from the year earlier to US$8.7 billion last year, a 16-year low, mostly driven by the economic fallout caused by the pandemic, according to the report.

Chinese investment in the US, on the other hand, inched up by US$900 million to US$7.2 billion in 2020, but the figure remained a fraction of the more than US$45 billion China invested in the US in the peak of 2016.

The businesses communities in the US and China have been caught in the middle of the worsening bilateral relations at a time when executives were looking to capture the next phase of growth in each other’s massive markets.

In the last decade, the capital flow between the two countries grew rapidly until it reached the peak in 2016. Since then, capital has slowed as the rhetoric against China became louder under the former US president Donald Trump.

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While President Joe Biden’s team has put many of the Trump China policies under review, the administration has kept tariffs on most Chinese imports in place. Aside from sporadic reprieves given to a couple of Chinese companies like Xiaomi and Luokung Technology, the Biden team has not revoked any of the Trump executive orders that ban dozens of Chinese companies from accessing US capital markets on national security grounds.

Since the beginning of the trade war in 2018, China has also increasingly taken up policies to direct its economy in the opposite direction of globalisation. The government doubled down on the country’s efforts to subsidise key tech industries to become less reliant on foreign countries.

China’s entry into the Regional Comprehensive Economic Partnership and the signing with the European Union the Comprehensive Agreement on Investment further shift the investment environment into other parts of the world away from the US.

Moreover, American businesses have become more reluctant to invest in China over human rights concerns caused by Beijing’s policies in Xinjiang and Hong Kong.

The pandemic depressed the investments for the US businesses to expand in China. After Walmart announced its opening of Sam’s Club in Shanghai, and Tesla’s phase-two project of the Shanghai gigafactory, fewer and smaller projects followed.

The acquisitions have also slowed, led by the PepsiCo’s US$750 million purchase of Be & Cheery and Cabot’s US$115 million acquisition of Shenzhen Sanshun Nano New Materials. Most deals were small to medium in size and were limited in the consumer products sector, according to the report.

China’s investments in the US last year were driven mostly by two large purchases including tech giant Tencent’s US$3.4 billion acquisition for a minority stake in Universal Music Group and Harbin Pharmaceutical Group’s US$770 million paid for the bankrupt GNC Holdings.

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That was a far cry from the 2016 peak when Chinese buyers were aggressively scooping up American businesses, buying up iconic US real estate properties and broadening the type of the purchases into entertainment, transportation and other areas.

Anbang, the owner of New York’s Waldorf Astoria, in 2016 took over a consortium of Strategic Hotels & Resorts properties from Blackstone in a US$6.5 billion acquisition. And Dalian Wanda Group purchased Hollywood studio Legendary Entertainment for US$3.5 billion.

As the pandemic loosens its grip on the US and China and the economies further rebound, the levels of investment activities are expected to come back up, the Wednesday report said.

But policy developments in Washington and Beijing remain a wild card, the report added. Whether the two countries will see a more sustained growth in investment hinges on how the two governments handle policies that would either encourage or block capital flow between the borders.

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