Chinese acquisitions and investments in the U.S. fell 92 percent to just $1.8 billion in the first five months of this year, consulting and research firm Rhodium Group said Tuesday.
Counting divestitures, net Chinese deal flow to the U.S. during that time was a negative $7.8 billion, the report said.
The decline follows a sharp drop in the second half of last year as pressure from both Beijing and the Trump administration curbed a recent surge in cross-border investment. Completed Chinese deals in the U.S. hit a record $46 billion in 2016, and dropped to $29 billion in 2017, according to Rhodium.
Completed Chinese FDI deals in the US* in $ millions (2006-2018)
Source: Rhodium Group. *Includes completed M&A transactions with over 10% resulting stake and greenfield projects that have broken ground. **January to May 2018.
In a search for investment opportunities, Chinese companies went on an overseas buying spree in 2015 and 2016.
But now, China wants to limit capital flight and excessive leverage. The U.S. is worried about intellectual property protection and has increased scrutiny of deals on the basis of national security. The Trump administration has also threatened restrictions on investment based on a “Section 301” investigation, the same study that led to the latest tariff announcements.
As a result, acquisitions worth more than $2 billion in the first five months of this year have fallen apart, Rhodium Group’s Thilo Hanemann said. They include Alibaba-affiliate Ant Financial’s proposed merger with MoneyGram, HNA’s plans to acquire Anthony Scaramucci’s SkyBridge Capital and China-backed fund Sino IC Capital’s efforts to buy semiconductor testing company Xcerra.
“The pipeline of pending M&A transactions remains thinner and the average transaction value far lower than in previous periods,” Hanemann said in the report.
He pointed out that in contrast to the typical hundreds of millions of dollars or more, the average size of Chinese deals in the U.S. so far this year was $46 million.
Big Chinese conglomerates HNA, Anbang and Wanda, are also selling many of their U.S. assets, sending the amount of completed U.S. divestitures to $9.6 billion in the first five months of this year, according to Rhodium. The analysis estimates another $4 billion in sales is pending.
The sales come amid pressure from Beijing for Chinese companies to expand overseas — in matching industries. A criticism of the conglomerates’ many entertainment and real estate deals was their fit with business strategy.
Real estate and entertainment remained among the top three recipients of Chinese capital this year, driven by midsize deals and overseas-listed internet and gaming companies, Rhodium said. But thanks to seven transactions in health and biotech, the industry’s share of overall Chinese deals in the U.S. rose from 9 percent last year to 58 percent so far this year, the report said.
Chinese FDI transactions in the US by industry (% of total)
Source: Rhodium Group
To be sure, the figures on annual changes are small compared with aggregate foreign direct investment in the last two decades and do not contribute much to gross domestic product.
New U.S. tariffs could also give Chinese manufacturers the incentive to produce in America, the Rhodium report pointed out.