Sino-US Investment Drops to Five Year Low in H1 2019

Ongoing trade tensions between China and the United States have driven reciprocal investment levels to their lowest point in half a decade according to a new report from the Rhodium Group.

Two-way capital flows between China and the US fell to USD$13 billion in the first half of 2019, for a 19% fall compared to the preceding half and the lowest reading since the first half of 2014 according to the Rhodium Group’s Sidelined: US-China Investment in 1H 2019 report.

FDI transactions by Chinese firms in the US totalled $3.1 billion in the first half, ahead of the $2.6 billion posted for the same period last year, yet far beneath levels for the period from 2013 – 2015.

Rhodium Group analysts impute the fall in investment levels to a plunge in acquisitions as a result of Chinese policies and market conditions, as well as heightened scrutiny by the Committee on Foreign Investment in the United States.

Newly announced global M&A transactions by Chinese firms has fallen from $145 billion for the first half of 2016 to just $20 billion for the first half of 2019.

By contrast US FDI in China was steadier, with $6.8 billion in transactions in the first half of 2019, just ahead of the half year average of $6.7 billion for 2017 and 2018.

Greenfield investment account for 79% of this investment at $5.4 billion.

Broken down by sector, the automotive industry was the top destination for US FDI in China in the first half with the launch of Tesla’s factory in Shanghai.

Financial and business services posted only a modest increase despite Beijing’s recent push for greater opening and liberalisation of the finance sector.

Rhodium Group analysts anticipate a rise in US investment in China’s financial sector over the next two years however, with:

  • Blackrock in discussions to acquire a majority stake in China International Capital Corporation (CICC) Fund Management;
  • Morgan Stanley and JPMorgan planning to raise their stake in their securities joint-ventures to 51%;
  • American Express obtaining preliminary approval for a joint venture to build an electronic payments services network in China.

US investors also invested $0.6 billion in the Chinese real estate and hospitality sector in the first half as asset prices waned in first-tier cities such as Shanghai and Beijing, while investment held steady in entertainment, media, health and biotech.

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