Investment between US, China hits 11-year low

The pandemic and deteriorating US-China relations have unsurprisingly led to a sharp decline in two-way investment, according to the most recent 2021 update on investment trends between the two countries.

The data provided by the Rhodium Group and the National Committee on US-China Relations was the focus of a virtual discussion on Wednesday at which Thilo Hanemann, a partner at Rhodium Group in New York, analyzed the figures.

It showed that foreign direct investment, or FDI, between the US and China fell to $15.9 billion in 2020, the lowest level for two-way flows since 2009. Chinese FDI in the US reached $7.2 billion in 2020, a slight increase from $6.3 billion in 2019. US FDI in China dropped to $8.7 billion in 2020, roughly a one-third reduction from 2019 and the lowest level since 2004.

Two-way venture capital investment declined slightly in both total value and number of funding rounds. At the height of economic relations between the US and China, two-way investment reached close to $70 billion in 2016 and more than $60 billion in 2017.

Timothy Stratford, managing partner in Covington& Burling LLP's Beijing office and chairman emeritus of the American Chamber of Commerce in China, said at the discussion that US companies don't want to leave China because "they see market opportunities; they see the value in the bilateral relationship".

Stratford said the pandemic-induced travel restrictions have led to more positions in China being filled by Chinese nationals instead of expatriates. "China may not any longer be the lowest-cost producer, and so that prompted some companies over the last several years to begin moving some of their manufactures out of China."

Of all factors, geopolitics is having the biggest impact on US-China business activities, Stratford said.

The administration of US President Joe Biden is coming up with a new China policy with a multilateral approach.

"All of these new policies and consensus-building exercises are not going to be easy because there are a lot of complex issues and priorities that are pulling in opposing directions," Stratford said.

Anna Ashton, senior director of government affairs at the US-China Business Council, who presented an overview of more than 150 China-related proposals currently being worked on by Congress, expressed a desire for clear policy.

"The scope of the Senate's effort to address the China challenge as they call it is really far broader," said Ashton, adding: "There are political factors here in the United States that are creating a climate that is anything but inviting to Chinese FDI."

Jing Shiyan in Kansas contributed to this story.