For several decades, one might say the US-China relationship was a one-way street when measured in terms of FDI. US firms would create investments in China with new global mandates or relocations (also known as ‘offshoring’) and nothing would come back in return except imported products and a growing trade imbalance. This was both the narrative and the fact of the matter. Recently the tables began to turn – until a trade war postponed this positive shift.
Historical investment data shows the US has been making substantial greenfield project investments in China since 1992, which then grew significantly in 2005 and has continued unabated for 13 consecutive years (2009 being the sole exception due to recession). Work by the Rhodium Group shows Chinese investment into the US has historically been miniscule, until 2010, when FDI began to flow in the form of greenfield projects and acquisitions.
In fact, in the eight years between 2010 and 2017, Chinese FDI into the US totalled $135bn and exceeded US investments into China by 20%. It seemed that the tide had finally turned – until the US instigated a trade war with China, and Chinese FDI into the US dropped 82% in 2018.
The 2019 Business Survey by the China General Chamber of Commerce-USA shows the reactions and intentions of member Chinese businesses operating in the US. More than half of these companies entered the US market by creating new operations and making greenfield investments. The survey shows that “complex China-US relations” will cause one-third of these companies to moderately or substantially reduce US investment over the next two years. And 45% of survey respondents indicated they will delay future investment due to current tariff conflicts.
These uncertainties and postponements are meaningful. According to greenfield investment monitor fDi Markets, China retained its position in 2018 as the largest source of outward capital investment from the Asia-Pacific region with more than $91bn in outward investment placed around the world. That is 50% more outward FDI than second ranked Japan.
Many countries and cities were the beneficiaries of the increasingly outward-facing Chinese business community. For the moment, however, it appears the US will largely be on the sidelines waiting for trade, tariff and other policy irritants to be resolved so that Chinese businesses will once more place their money into US communities.
Gregg Wassmansdorf is senior managing director, consulting, at Newmark Knight Frank, a global real estate services firm. He is a member of the Site Selectors Guild. E-mail: firstname.lastname@example.org