As trade war drags on, U.S. loses billions in investment
88% drop in Chinese cash could be felt in rural states
WASHINGTON — Growing distrust between the United States and China has slowed the once steady flow of Chinese cash into America, with Chinese investment plummeting by nearly 90 percent since President Donald Trump took office.
The falloff, which is being felt broadly across the economy, stems from tougher regulatory scrutiny in the United States and a less hospitable climate toward Chinese investment, as well as Beijing’s tightened limits on foreign spending. It is affecting a range of industries, including Silicon Valley startups, the Manhattan real estate market and state governments that spent years wooing Chinese investment, underscoring how the world’s two largest economies are beginning to decouple after years of increasing integration.
“The fact that the foreign direct investment has fallen so sharply is symbolic of how badly the economic relationship between the United States and China has deteriorated,” said Eswar Prasad, former head of the International Monetary Fund’s China division. “The U.S. doesn’t trust the Chinese, and China doesn’t trust the U.S.”
For years, Chinese investment into the United States had been accelerating, with money pouring into autos, tech, energy
and agriculture and fueling new jobs in Michigan, South Carolina, Missouri, Texas and other states. As China’s economy boomed, state and local governments along with U.S. companies looked to snap up some of those Chinese funds.
But Trump’s economic Cold War has helped reverse that trend.
Chinese foreign direct investment in the United States fell to $5.4 billion in 2018 from a peak of $46.5 billion in 2016, a drop of 88 percent, according to data from Rhodium Group, an economic research firm. Preliminary figures through April of this year, which account for investments by mainland Chinese companies, suggested only a modest uptick from last year, with transactions valued at $2.8 billion.
A confluence of forces appears to be at play. A slowing economy and stricter capital controls in China have made it more difficult for Chinese investors to buy American, according to trade and mergers and acquisitions advisers. Trump’s penchant for imposing punishing tariffs on Chinese goods and an increasingly powerful regulatory group that is heavily scrutinizing foreign investment, particularly involving Chinese investors, have also spooked businesses in both countries.
China, which has retaliated against U.S. goods with its own tariffs, may also be turning off the investment spigot as punishment for Trump’s economic crackdown.
Concerns about America’s receptiveness to Chinese investment have been aggravated by a flurry of transactions that collapsed under heavy scrutiny from the Committee on Foreign Investment in the United States. The group, which is headed by the Treasury Department, gained expanded powers in 2018 that allow it to block a broader array of transactions, including minority stakes and investments in sensitive technologies such as telecommunications and computing.
Shortly after the new year, China’s HNA Group took a $41 million loss on a glass and aluminum Manhattan high-rise after U.S. regulators forced it to sell the property because of security concerns about its proximity to Trump Tower, only a few blocks away.
In March, the Chinese owners of a gay dating app known as Grindr were told by regulators to find a buyer for the company. The Trump administration feared Beijing could use personal information as leverage over U.S. officials.
But the increased scrutiny is also complicating efforts by U.S. industries to team up with Chinese investors and leading to a retrenchment in certain sectors. The real estate sector, which has been buttressed by investors from China in the last decade, has had a steep falloff as relations sour and as Chinese officials clamp down on foreign real estate investment.
A May report from Cushman & Wakefield noted a “frenzy of disposal activity” among Chinese commercial real estate investors in the United States. In 2018, there were 37 property acquisitions by Chinese buyers worth $2.3 billion, but $3.1 billion of commercial real estate was sold off.
Chinese investors are also showing less appetite for residential real estate in the United States. Research released recently by the National Association of Realtors found that purchases of homes in America by Chinese buyers declined by 56 percent to $13.4 billion in the year to March.
Weaker Chinese investment is unlikely to derail the U.S. economy, as it is a small fraction of that from Britain, Canada, Japan and Germany. China also continues to be the largest buyer of U.S. Treasuries; its holdings, however, have fallen in recent years to $1.1 trillion, according to the latest Treasury Department data.
But the decline in investment could hurt areas that are already economically disadvantaged and that have become dependent on Chinese cash. Craig Allen, president of the U.S.China Business Council, said the loss of Chinese investment would be felt predominantly in rural states where Chinese investors have bought factories and revived struggling businesses.
“The not-so-welcome mat is out, and it is having a deleterious effect on relatively poorer areas in the United States that need jobs,” he said.