China's foreign direct investments (FDI) in the United States plummeted by a staggering 92 percent in the first-half of 2018 year-on-year, and show no signs of regaining its former vitality considering the simmering trade war between both countries.
A report from the Rhodium Group, an independent research firm based in New York City, also revealed that Chinese firms are divesting their holding in U.S. companies at an unprecedented rate. Chinese investors are selling their existing assets in the U.S. as quickly as they can.
Rhodium reported that Chinese acquisition and greenfield investments in the U.S. from January to May amounted to only $1.8 billion, the lowest net value in seven years. Chinese FDIs in the U.S. peaked at $46 billion in 2016 but dropped to $29 billion in 2017, the first full year of Donald Trump's presidency.
Internal problems within China and external challenges abroad are to be faulted for China's dwindling FDIs. Rhodium believes the plunge in China's FDI was triggered by crackdowns from both Chinese and U.S. lawmakers, which is colorfully described as a "double policy punch." The Chinese FDI slump is likely a long-term trend.
China's role in the FDI choke-off has to do with the central government strangling what it calls "irrational foreign investments" starting in 2016. In mid-2017, Beijing gave priority to investments supporting the Belt and Road Initiative (BRI), the pet project of president Xi Jinping.
Radically deemphasized were "irrational" investments in real estate, entertainment, hospitality, and sports clubs, which were the destination of choice for most of Chinese FDIs in the U.S.
China's FDIs were mostly the work of huge real estates firms such as such as HNA Group, Anbang Insurance Group, and Dalian Wanda Group. The fall from grace of these mammoth conglomerates and their oppression by the state is a key part of China's painful deleveraging campaign.
On the other hand, Washington is striking back at what it sees as China's attempt to gain control of defense technologies developed in Silicon Valley.
"We recognize that China has become a lot more powerful, and the role their investments play as a means for technology transfer has been reflected in the National Security Strategy and the National Defense Strategy," said Michael Brown, of the U.S. Defense Department's Defense Innovation Unit Experimental (DIUx).
A key component of China's Made in China 2025 strategy is the requirement that every commercial technology in China be available to the People's Liberation Army (PLA), a policy the Chinese government calls "civil-military fusion."
