Investment flows between China and the US fell to their lowest level in almost a decade in the first half of the year, as the coronavirus pandemic and political tensions cast a shadow over cross-border activity.
Capital flows between the two countries amounted to $10.9bn in the first six months of 2020, lower than any period since 2011, according to a report from consultancy Rhodium Group and the National Committee on United States-China Relations, a non-governmental organisation.
US-China relations have fallen to their lowest point in decades following the coronavirus pandemic, which exacerbated frictions over trade and ushered in fears of a “cold war” chill between the world’s two largest economies.
The report, which tracked foreign direct investment and venture capital investment in both directions, also warned about pressure to “unravel existing investments” in the US after Donald Trump ordered a sale of the US operations of TikTok, the video app owned by the Chinese company ByteDance.
“Right now we’re moving towards decoupling,” said Stephen Orlins, president of the National Committee on US-China Relations. He added that relations were worse than at any period he had experienced since the 1970s, including the aftermath of the Tiananmen Square massacre in 1989.
“It’s human rights, it’s economic reform, it’s the South China Sea, it’s the Hong Kong National Security Law, it’s Taiwan . . . [there’s] a long, long list of issues where there are very high tensions,” he said.
The report found that cross-border investment would have been significantly lower had it not been for a single deal in the US: Chinese technology company Tencent’s purchase of a $3.4bn stake in Universal Music Group.
“The number of completed investment transactions remained low as a wider and more restrictive set of US policies were applied, especially in the technology sector” the report said.
The combined investment metric between the countries peaked in 2017 at $37bn, and has mostly declined since then.
Jean-Marc F Blanchard, an executive director at the Mr and Mrs S H Wong Center for the Study of Multinational Corporations, a California-based think-tank, said the longer-term decline in Chinese FDI in the US was driven by the weakness of Chinese conglomerates that had expanded overseas.
“There was a big surge in Chinese investment in the United States in the 2015-2017 period and I think everybody expected that to be . . . the new norm, when it was extraordinarily skewed compared to what had happened,” he said.
In China, where completed US investments declined by 31 per cent year-on-year in the first half, Mr Orlins suggested the fall “was virtually all pandemic related”.
A survey published last week by the American Chamber of Commerce in Shanghai found that less than 4 per cent of respondents were relocating production capacity to the US.
Over recent weeks, large US companies have stepped up their efforts to play a bigger role in China’s rapidly liberalising financial services sector following government reforms.