Direct investment between the United States and China fell to $15.9 billion last year, the lowest level since 2009, a report released Wednesday (May 19) said, amid the New Crown (Chinese Communist Party virus) outbreak and heightened U.S.-China tensions.
A report by the Rhodium Group and the National Committee on U.S.-China Relations (NCUSCR) said direct investment between the two countries fell to $15.9 billion in 2020, an amount less than a quarter of the $70 billion invested in 2016.
The report also said U.S. investment in China was $8.7 billion last year, down about one-third from a year earlier, which was also the lowest level since 2004.
Chinese investment in the U.S. is $7.2 billion in 2020, up slightly from $6.3 billion in 2019, the report said. But this was driven by a series of large acquisitions, including Tencent’s acquisition of a portion of Universal Music Group (UMG).
The report also mentioned that the total value of two-way venture capital (VC) and the number of rounds funded also declined slightly. Chinese VC investment in the U.S. grew slightly, outpacing flows in the U.S. for the first time ever, but the increase was only marginal. By contrast, U.S. venture investment in China fell to its lowest level in five years.
In the words of Irons, president of the National Committee on U.S.-China Relations, “Bilateral investment has not continued on the trajectory we saw years ago, and it’s fair to say that neither country’s economic interests are being particularly well served.”
The Trump administration has taken action to restrict Chinese companies, citing national security risks, which included putting Chinese telecom giant Huawei on a trade blacklist.
Last November, the Trump administration issued an executive order prohibiting U.S. investment firms, pension funds and other financial institutions and individuals from owning or trading in any securities issued by companies that the U.S. Department of Defense has determined have a Communist Party military affiliation. The executive order was issued so that the affected Chinese companies’ stocks and securities no longer qualify for the index.
Hong Kong’s South China Morning Post reported that the Biden administration continues to impose tariffs on most Chinese imports, despite its review of many of the Trump administration’s China policies. The Biden administration also has not rescinded an executive order banning dozens of Chinese companies from entering the U.S. capital markets on national security grounds.
Since the trade war began in 2018, China has also increasingly adopted policies to steer its economy in the opposite direction of globalization, the report added. The government has stepped up subsidies to key technology sectors to reduce dependence on foreign countries.
The National Committee on U.S.-China Relations said the economic impact of the new crown epidemic and further deterioration in bilateral relations in the first half of 2020 pushed two-way investment flows between the U.S. and China to their lowest level in a decade.
The Commission also said that while flows picked up in the second half of the year, continued bilateral friction and increased regulatory scrutiny continue to dampen investor sentiment and create uncertainty about the outlook for two-way investment in 2021.
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