Economic fallout from the COVID-19 pandemic and escalating political tensions pushed two-way investments between the United States and China to their lowest level in nearly a decade in the first half of 2020. Expanding U.S. scrutiny of Chinese companies, election politics, and uneven economic recovery trajectories will maintain high pressure on U.S.-China capital flows for the remainder of the year.
On September 17, 2020, Rhodium Group’s founding partner Daniel Rosen and its Two-Way Street report authors Thilo Hanemann and Adam Lysenko joined National Committee President Stephen Orlins to discuss their latest report, a mid-year review of the latest trends in U.S.-China investment and an analysis of the political dynamics and market developments behind them.
Below are the key takeaways from the report and presentation.
- Two-way capital flows between the U.S. and China dropped to a nine-year low: Combined direct and venture capital investment between the two countries totaled $10.9 billion in 1H 2020, the lowest level since 2H 2011. The drop would have been even larger if not for one especially large acquisition carried over from last year.
- Chinese FDI in the United States rebounded slightly due to one deal: The total value of completed Chinese direct investment in the United States increased to $4.7 billion in 1H 2020 from $3.4 billion in 1H 2019, mainly thanks to Tencent’s $3.4 billion purchase of a minority stake in Universal Music Group.
- US FDI in China declined as the dual impact of the pandemic and bilateral tensions hit: U.S. companies slashed new investment in China in 1H 2020 but remained committed to ongoing greenfield projects and previously announced acquisitions. Completed investments declined to $4.1 billion, a year-over-year drop of 31 percent.
- Chinese venture activity in the United States remained stable but total investment dropped to a six-year low: While preliminary figures show a modest uptick in the number of Chinese VC transactions in the United States in 1H 2020 compared to 2H 2019, the estimated investment volume of $800 million was the lowest since 2014.
- U.S. venture investment in China hit its lowest level in four years amidst a broader tech slowdown: VC investment by U.S. firms in China notched a fourth consecutive six-month period of decline as the COVID-19 pandemic further deepened the correction in Chinese technology sector investment since 2018.
- Growing bilateral tensions are pressuring firms to unravel existing investments: The order by President Trump for Bytedance to sell social media app TikTok is the latest example of a series of high-profile asset divestitures forced by U.S. regulators. At a time of rising discomfort with U.S.-China technology integration, numerous other companies – both Chinese firms operating in the United States and U.S. firms with a presence in China – could face pressure to divest.
- Flows are unlikely to recover in 2H 2020 amidst persisting systemic concerns and U.S. election politics: The political environment, stepped-up enforcement of FIRRMA rules, and a meager deal pipeline will keep investment subdued in 2H 2020.
SPEAKERS
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Thursday, September 17, 2020
5:00 PM to 6:15 PM EDT
Speaker(s):
Thilo Hanemann
Adam Lysenko
Venue:
Zoom Webinar
Partner(s):
Topic:
