In a notable shift with profound implications for global economic dynamics, China is embarking on a deliberate path of decoupling from the United States. The evidence of this transformation is mounting, with businesses significantly scaling back investments in America to levels not witnessed since the aftermath of the global financial crisis. Official data further underscores this trend, showcasing a stark decline in trade dependency.
According to recent research conducted by the prestigious consulting firm Rhodium Group, the value of completed Chinese foreign direct investment transactions in the United States dwindled to a mere $2.49 billion in the preceding year. This figure represents less than half the amount recorded in the prolific year of 2021 and stands as the lowest level since the challenging economic terrain of 2009.
The report from Rhodium Group underscores the palpable shift in China’s investment footprint on American soil. Over the past seven years, China has transitioned from being one of the top five investors in the United States to a second-tier player, overtaken by countries such as Qatar, Spain, and Norway. This transformation has raised pertinent questions about the shifting dynamics of global investment patterns.
Simultaneously, China’s customs department data, unveiled on Thursday, has laid bare the diminishing share of Chinese imports originating from the United States. This trajectory commenced in 2018, coinciding with former US President Donald Trump’s escalation of the trade war with China.
The United States, in recent years, has undertaken strategic measures aimed at curtailing Chinese investment, particularly in the advanced technology sector, which is perceived as a national security threat. Furthermore, there have been efforts to restrict the involvement of Chinese companies in the production of electric vehicles destined for the American market.
The impact of China’s “Covid Zero” policy, which was only lifted at the close of the previous year, cannot be understated. This policy rendered overseas travel for Chinese executives more challenging, thus curtailing offshore expansion initiatives.
Drawing from official US data, Rhodium Group highlights a stagnation in the size of assets held by Chinese companies within the United States, with the figure resting at $282 billion as of 2021—a level largely reminiscent of 2017.
Intriguingly, the report also reveals a substantial decline in employment generated by Chinese firms on American soil. In 2021, the number of employees in these firms dwindled to a mere 140,000, marking a stark drop of over 60 percent from the levels observed in 2017.
The zenith of Chinese investment in the United States materialised in 2016, marked by a series of high-profile asset acquisitions, particularly in sectors such as entertainment and hospitality. However, Beijing promptly imposed restrictions on such transactions, driven by apprehensions regarding financial risks and concealed capital flight.
The enduring impact of tariffs levied by both nations as a consequence of Trump’s trade war in 2018 is manifesting in official data. China’s purchases from the United States, as a proportion of its total imports, have diminished by 2 percentage points to 7.2 percent since the commencement of 2018. This decline stems from US constraints on the export of high-tech products like microchips, alongside Chinese airlines suspending new acquisitions of Boeing aircraft.
The repercussions are not one-sided. US businesses have also reduced their imports from China. The share of US imported merchandise originating from China averaged at 14.6 percent over the 12 months leading to July, reaching its lowest point since 2006. This figure represents a marked decline from the pinnacle of 21.8 percent observed over the 12 months preceding March 2018.
It is worth noting that some economists have raised valid queries regarding the extent to which bilateral data can truly illustrate the phenomenon of decoupling, given that companies frequently reroute trade and investment via subsidiaries in third countries. For example, many Chinese enterprises have established operations in Mexico and South Korea in recent years to secure preferential access to the US market.
As China and the United States continue to recalibrate their economic relationships, the implications are likely to reverberate across global markets, geopolitics, and international trade. The transformation underway signals a new era in economic interdependence and underscores the importance of vigilant monitoring of these evolving dynamics.