Chinese investment in U.S. shifts into venture capital, while some investors pull out
May 14, 2019 Category China News Round-up, Weekly
Chinese investors, finding the U.S. business environment is becoming more and more uninviting, are turning to venture capital to skirt heightened scrutiny, while some have decided not to invest in the U.S. at all. Chinese foreign direct investment (FDI) into the U.S. plummeted for the second straight year in 2018, tumbling 83% to USD5 billion, according to a report by the National Committee on U.S. China Relations. A year earlier, FDI amounted to USD29 billion, down from the peak of USD46 billion in 2016. The latest figure represented the lowest level of direct investment by China since 2011. In 2018, Chinese investors sold USD13 billion worth of U.S. assets. Including those sales, direct investment in the U.S. came to a negative USD8 billion.
The Trump administration has recently toughened its oversight of Chinese investment in the wake of a number of Chinese acquisitions, particularly in U.S. technology, viewed as a national security threat. Chinese investors, as a result, are shifting into venture capital to avoid the stepped-up surveillance. Last year, venture capital investments from China to the U.S. increased to a record USD3.6 billion, mainly in automotive industry investment. Chinese venture capital had remained largely untouched by U.S. regulators up to November 2018, allowing deal activity to continue somewhat strongly in semiconductors amid sharp drops in direct investment, the report said.
The overall decline in FDI continued for a second year as the U.S.-China relationship grew increasingly hostile with U.S. President Donald Trump’s levying punitive tariffs on hundreds of billions of dollars of Chinese goods nearly a year ago, launching the trade war. The Chinese government also stepped up control of the flow of outbound capital, prohibiting Chinese investors from acquiring assets in real estate, hospitality and other sectors. In the past year, major Chinese companies that had led the acquisition binge in 2015 and 2016 have sold assets worth billions of U.S. dollars to bring capital back to China to boost domestic growth.
On the other side, U.S. venture investment in China soared to a record USD19 billion, nearly doubling the previous high of USD9.4 billion a year earlier. Foreign direct investment (FDI) from the U.S. into China stayed largely flat at USD13 billion in 2018 from USD14 billion in 2017, according to the report from the National Committee on U.S. China Relations.
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