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    Home»Technology»China’s Investments in US Remain Low Amid Pandemic and Invasion Fallout: Rhodium Group
    Technology

    China’s Investments in US Remain Low Amid Pandemic and Invasion Fallout: Rhodium Group

    adminBy adminApril 8, 2022No Comments
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    Internet heavyweight Tencent’s purchase of shares in Universal Music Group was one of China’s … [+] largest investments in the US last year. Photographer: Bing Guan/Bloomberg


    © 2021 Bloomberg Finance LP

    The aftermath of the Russian invasion of Ukraine is likely to increase downward pressure on Chinese investments in the United States this year.

    So believes Reva Goujon, senior manager at New York-based Rhodium Group, which specializes in China research.

    China’s slower economic growth in recent years has already weighed on inflows. “The current economic headwinds are strong and growing,” Goujon said in a phone interview today.

    Long-standing US national security concerns over Chinese investments have intensified but are also taking a new turn. “On the US side, some recent industry commentary on Chinese investment is very interesting, such as the discussion of the potential CATL investment in North America,” Goujon noted. Contemporary Amperex Technology is one of the world’s largest manufacturers of electric vehicle batteries; Chairman Robin Zeng was the third richest member in Greater China on Forbes 2022 billionaires list released this week. (See the related post here.)

    “In the US, there is almost a mirror image of Chinese behavior in (discussions about) strategic supply chain vulnerabilities and the idea that you would grant market access in exchange for technology transfer and the use of US labor. This is a rather loaded negotiating point between the US and China. It’s going to be an intriguing area to watch.”

    Notably, companies headquartered in Mainland China with US investments include BYD, Fosun International, Fuyao Glass, Haier Group, Pharmaron, Tencent and Xtep.

    Interview excerpts follow.

    Flannery: What were your expectations for Chinese investments in the US earlier in the year before Russia invaded Ukraine?

    Goujon: Chinese FDI (foreign direct investment) inflows into the US have remained low. The average inflow over the period 2018-2021 was $7 billion, compared to a peak of $49 billion in 2016 and $37 billion in 2017. For 2021, our preliminary estimate is $5.7 billion U.S. dollar. This is not surprising given the number of economic factors we see on the Chinese side and the national security factors affecting things on the US side.

    As expected, most FDI went to non-sensitive sectors such as entertainment and real estate. One transaction accounted for about 60% of the total — the Tencent-led consortium’s purchase of a 10% stake in Universal Music Group. Another key feature over the past year has been that state investors have been pretty much out of the picture. According to our figures, private companies accounted for about 97% of all FDI in 2021. Again, not surprising, but a fairly pervasive trend.

    Reva Goujon


    2012 Maryna Marston with Square Earth Studio, Rhodium Group

    At this point, the VC trend is still relatively strong. That focus is mostly on healthcare, pharma, and biotech — around $3 billion to $4 billion. We haven’t seen a spike in greenfield investment in the US over the past year or a major pipeline there, contrary to the trend we’re seeing with Chinese FDI in Europe, which actually saw a big boost in 2021. That’s something to do watching it go forward.

    Looking ahead, we do not expect a large increase in Chinese FDI to the US in 2022. Several factors ensure this. Strict capital controls in China and strict zero-Covid policies (limit) Chinese foreign investments. With Covid, investors can no longer travel as much as they used to (yet) be able to plan their investments and close deals. The current economic headwinds are strong and growing. The slowdown in the real estate sector and subdued household consumption will exacerbate these problems already beyond Covid.

    The question arises as to how much impact Beijing will actually achieve with its stimulus. They promise GDP growth of 5.5%. We think that’s completely unrealistic, but there are many expectations of the stimulus. And what will be the return on this investment? Given the recent sell-off (foreign equity positions), we are concerned about capital outflows. Investors associate Russia’s (relationship with) China with a sort of Eurasian alignment. You can see that risk sentiment is affecting investment as China tries to maintain a balancing act between political tilt on Russia and de-risking secondary measures.

    These are just some of the reasons why we expect the trend of low Chinese FDI to the US to continue. We must also pay attention to adjustments to China’s zero-Covid strategy. It will be months before we actually see some really critical things come into play, like the launch of a homegrown mRNA vaccine in China. If we see the Covid crisis getting worse, let’s see if the distribution of the Pfizer vaccine is eased a bit.

    On the US side, some recent comments on Chinese investments are very interesting, such as the discussion of CATL’s potential investment in North America. In the US, there is almost a mirror image of Chinese behavior in (discussions about) strategic supply chain vulnerabilities and the idea that you would give market access in exchange for technology transfer and the use of US labor. This is a rather loaded negotiating point between the US and China.

    This will be a fascinating area to watch. US investors are looking at Chinese industrial policy and considering which areas are safer to invest in and how to follow a trend line, where the (Chinese) state is investing a lot of energy and resources and where not to cross the US red lines on restrictions . Now the Chinese are looking at it from the other side. What has the US identified as its supply pain points and where can Chinese investors try to follow this trendline without crossing red lines?

    The confirmation of Alan Estevez as Undersecretary for Industry and Security also contributes to this. There’s a lot of pressure on him and his agency to list fundamental technologies, not only in terms of inbound investments, but also in terms of new guidelines for outbound investments. That’s another thing to watch as the US adds more definition to trade and investment restrictions.

    See related posts:

    Covid-19 outbreaks in China disrupt supply chains, manufacturing, investment and workforce – AmCham

    China Covid lockdowns likely to be followed by 2nd half easing

    The 10 richest Chinese billionaires

    @rflannerychina

    BYD CATL China fosun Fuyao glass Haier Pharmaron Tencent. VK Xtep
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