China is slowly decoupling from the US, with businesses slashing investment into America to the lowest since the global financial crisis and official data showing trade dependency slumping.
(Bloomberg) — China is slowly decoupling from the US, with businesses slashing investment into America to the lowest since the global financial crisis and official data showing trade dependency slumping.
The value of completed Chinese foreign direct investment transactions in the US was $2.49 billion last year, less than half the amount in 2021 and the smallest since 2009, according to new research from consulting firm Rhodium Group.
“In the past seven years, China has gone from one of the top five US investors to a second-tier player surpassed by countries such as Qatar, Spain, and Norway,” Rhodium researchers including Thilo Hanemann wrote in a report.
Separately, data from China’s customs department on Thursday showed the share of Chinese imports from the US has fallen since 2018, when former US President Donald Trump ramped up his trade war with the Asian country.
Read More: China Is Better at Trade Decoupling Than the US
The US in recent years has taken steps to limit Chinese investment, especially acquisitions in the advanced technology sector, which it deems a threat to national security. It’s also moved to limit Chinese companies’ involvement in the production of electric vehicles sold in the US.
On top of that, China’s Covid Zero policy — which was only lifted at the end of last year — made it more difficult for Chinese executives to travel overseas, curbing offshore expansion.
Rhodium cited US official data to show the size of assets held by Chinese companies in the US has stagnated in recent years — to $282 billion as of 2021, roughly the same level as in 2017.
Employment by Chinese firms in the US dropped to just 140,000 in 2021, a decline of more than 60% from 2017 levels, according to the report.
Investment by Chinese companies into the US peaked in 2016, when there was a string of high-profile asset purchases in sectors like entertainment and hospitality. Beijing quickly moved to curb those kinds of transactions due to fears about financial risks and disguised capital flight.
Tariffs imposed by both countries on imports after Trump launched his trade war in 2018 are showing up in the official data as well.
China’s purchases from the US as a share of its total imports dropped by 2 percentage points to 7.2% since the beginning of 2018, according to Bloomberg calculations of official Chinese data. That was driven by US limits on the export of hi-tech products like microchips and Chinese airlines halting new purchases of Boeing airplanes.
US businesses are also importing fewer goods from China. The share of US imported merchandise from China fell to an average of 14.6% in the 12 months through July, the lowest since 2006, according to Bloomberg calculations based on official US data. That’s down from a peak of 21.8% in the 12 months through March 2018.
Some economists have raised questions about the extent to which bilateral data can demonstrate decoupling, arguing that companies can often re-route trade and investment through subsidiaries in third countries. For instance, many Chinese companies have set up operations in Mexico and South Korea in recent years to receive preferential access to the US market.
(Updates with latest trade data)
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