The tiffs around the trade war between America and China are now getting big, and the impact is visible in declining investment numbers in the U.S. A report prepared by consulting and research firm Rhodium Group finds that Chinese acquisitions and investments in the U.S. declined by 92% to just $1.8 billion during the first five months of this year, according to CNBC.
During the same period, the net Chinese deal flow to the U.S. stood at negative $7.8 billion, if divestitures are included. Divestiture is the opposite of investment and is defined as the disposal of a business unit through sale, exchange, closure or bankruptcy.
While the talk of trade war between the two leading economies of the world has gained momentum in last few months, the decline in Chinese investments started during the second half of the previous year. From the second-highest biannual peak value, nearly touching $25 billion during the first half of 2017, the figure dropped significantly to just around $5 billion during the next six months. It further dipped to around $1.8 billion during first five months of 2018.
Graph Courtesy: CNBC/Rhodium Group
Starting in 2015, there was a significant and steady increase in investment in the U.S. by Chinese companies as they went looking for global opportunities. The trend continued through 2016, a year that saw a record $46 billion in investment deals by Chinese businesses in the U.S.
Trade Issues Play Spoilsport
Things start to fall apart after 2017, as the administrations of both the nations were at loggerheads with each other on several trade issues. While the Trump administration has repeatedly cited concerns around the protection of intellectual property and national security and has implemented tight curbs before new deals are allowed, the Asian powerhouse wants to limit capital outflow and excessive leverage. Citing Section 301, the basis for recent tariffs on Chinese imports, more restrictions are expected to be put in place by the Trump administration. (See also: 3 Ways China Could Hurt American Businesses.)
The major deals that hit the hurdle include Jack Ma-led Alibaba Group Holding Ltd. (BABA) affiliate company Ant Financial's proposed merger with MoneyGram, HNA's plans to buy Anthony Scaramucci's SkyBridge Capital and Sino IC Capital's attempts to purchase semiconductor company Xcerra. Additionally, the existing Chinese investors in the U.S. are eyeing the exit, which is further deteriorating numbers. For instance, Chinese conglomerates like Anbang, HNA and Wanda have sold, or are in the process of selling, assets worth $9.6 billion during 2018-YTD. Another $4 billion worth of sales are pending, Rhodium reports. Beijing is reportedly pressuring Chinese companies to expand overseas in matching industries. (See also: Trump's China Tariffs: What's at Stake for the US?)
Real estate continues to remain one of the top sectors to receive Chinese investments between 2016 and 2018-YTD, while transport and infrastructure sector has lost its share to health and biotech.