Chinese companies always proved the United States with an abundance of wealth, deepening ties between the countries. However, in the first five months of 2018, Chinese investment in the U.S plummeted causing tensions between the world’s two largest economies.
Conforming to CNN, Chinese investment totaled only $1.8 billion in the first five months of 2018. That is a 92% drop compared to the same period in 2017, and the lowest level in seven years. The dramatic drop comes as the fight between Washington and Beijing over trade escalates.
President Donald Trump has made cracking down China’s unfair trade practices a top priority this year. He will place tariffs on Chinese products worth minimum $50 billion, stated he could impose tariffs on goods worth hundreds of billions of dollars more if China doesn’t attend to U.S demands. China replied with plans to strike back. Recently, China retaliated against U.S tariffs on steel and aluminum causing struggles for many Americans.
The Committee on Foreign Investment in the United States (CFIUS) is an inter-agency panel that vets deals that may give foreign investor control of a U.S business for national security risks. Many major deals involving Chinese investors were called off in the first half of 2018 by companies who cited problems with CFIUS. These companies include Alibaba affiliate Ant Financials $1.2 billion attempt to takeover MoneyGram, and HNA Group’s bid for Skybridge Capital, a hedge fund/
About a year and a half ago, China started imposing capital controls to stop its biggest conglomerates from overextending themselves. In 2017, Beijing said it would limit overseas investments by Chinese companies like real estate, hotels, and entertainment.
As a result of these rules, some of China’s largest conglomerates are rapidly offloading U.S assets in order to pay down debts.
Earlier this year, Rhodium Group stated that China’s ongoing restrictions is the key reason that investment in the U.S fell 36% between 2016 and 2017.
Furthermore, the Trump administration has said it will announce new restrictions on Chinese investments in the U.S by June 30.