HomeFT SelectSurge in Chinese corporate investment into the US

Surge in Chinese corporate investment into the US

Chinese companies invested a record $45.6bn in the US in 2016 despite a US presidential campaign heavy on China bashing, but Donald Trump’s imminent arrival in Washington is among factors making the feat unlikely to be matched this year, according to a new report.

The surge in Chinese foreign direct investment into the US documented by Rhodium Group, a research firm, led the annual flow of corporate acquisitions to triple over 2015 levels. It also took the stock of China’s long-term investment in physical assets over $100bn for the first time, with Chinese companies now employing more than 100,000 people in the US. 

The increase in Chinese investment highlights the changing nature of the economic relationship between the US and China. For decades, US-based multinational companies have been building factories and making other substantial investments in China. But little direct investment has flowed the other way, although Beijing has parked trillions of dollars of its foreign exchange reserves in US Treasuries. 

That pattern has led to an imbalance. In a November study backed by the National Committee on US-China Relations and the China General Chamber of Commerce, Rhodium said US companies had invested $228bn in China since 2000. In its latest report the group said cumulative Chinese investment in the US over the same period had reached $109bn, with almost half of that coming last year alone. 

The rapid increase in 2016 came despite rising political scrutiny of Chinese investment in Washington and a presidential campaign in which Mr Trump, the eventual winner, threatened a trade war with China and blamed Beijing for the loss of industrial jobs in key US states. 

But Rhodium’s analysts said the new uncertainty surrounding Mr Trump’s administration and particularly his appointment of China hawks to oversee trade policy meant Chinese companies were unlikely to repeat that level of investment in 2017. 

Chinese companies are waiting for regulatory approval for acquisitions worth $21bn and have committed more than $7bn to announced greenfield projects that have not yet started construction, according to Rhodium.

Slowing growth in China and an improving economy in the US would normally lead to yet more investment. However, “while the economic fundamentals and the deal pipeline suggest that 2017 will be another boom year for Chinese investment in the US, the political realities on both sides pose a major downside risk to both pending transactions and new deal flow in coming months,” Rhodium analysts wrote. 

Growing concerns about rising capital outflows have led authorities in Beijing to crack down on overseas investments by Chinese companies in recent months. 

But “Chinese investors also face greater uncertainty and political deal risk in the United States in the aftermath of the presidential election,” Rhodium said. Beyond the more “confrontational approach to trade and investment policy toward China” signalled by Mr Trump’s appointments so far, there are also questions over the administrative approval process for foreign investments under the new administration. 

Some members of Congress have been clamouring for changes to the way the Committee on Foreign Investment in the US scrutinises deals and are calling for a broadening of its now relatively narrow national security-focused mandate. 

China has long complained that its investments receive unfair scrutiny from the Committee on Foreign Investment in the United States, and how to deal with those issues has been part of the discussions surrounding a bilateral investment treaty that has been a focus during the Obama administration. 

In a rare move, President Barack Obama last month formally blocked the takeover of German technology group Aixtron by Chinese investors following a recommendation by Cfius, which examined Aixtron’s US assets. 

Companies have in the past chosen to cancel deals before the committee’s concerns reached the president. 

Philips, the Dutch technology group, last year abandoned a $3.3bn deal to sell its US-based Lumileds lighting division to a Chinese-backed private equity fund because of opposition from the committee. Unisplendour, a subsidiary of state-owned Tsinghua Holdings, also withdrew its $3.8bn bid for a stake in Western Digital, a US data storage company, after it became clear Cfius was planning to review the deal.

Via FT

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