Collaboration and competition: China/U.S. investment trends update

We learned this week that investment from China into the U.S. (according to the Rhodium Group) peaked at $46.5 billion in 2016, but has fallen to $5.4 billion last year. In contrast, U.S. investment in China in 2018 was $14 billion, which has been fairly constant since the end of the Great Recession in the previous decade. Meanwhile, U.S. China trade talks are set to resume next week. As investors contemplate the future’s somewhat murky waters, there are a few trends that we are seeing develop in the current China/U.S. investment dynamic which are marked by competitive feelings and collaborative sentiments.

1. Even if a more general trade deal is made between the United States and China, investment by China in the areas of technology, especially digital technology, will continue to be problematic given national security, privacy, and intellectual property protection concerns. There appears to be bipartisan support in the United States for enhanced scrutiny of this sector. Therefore, it is unlikely that these increased barriers and obstacles will be eliminated by any trade deal or even a change in administration.
2. There will be opportunities, however, for cross-border investment to occur, in both directions, in the areas of health care, clean energy, food & beverage, consumer products, entertainment, agriculture, and industrial equipment. In addition, the opening of China’s economy earlier and wider to investment in the financial services sector creates opportunities and, perhaps, creates a road map for more investment in the large Chinese services segment by U.S. companies.
3. We see continued political and popular support for people-to-people connections between the U.S. in China—including travel/tourism and education. These sectors have experienced a slight drop-off in activity in the last year, but they also have seen spectacular growth in the last few years. They are likely to see increased investment from both domestic and international sources.

While investment in the tech sectors and related fields will be constrained by fears of American and Chinese competition for the foreseeable future, we do see many investment opportunities where collaboration between the two nations could be both possible and profitable.