June 20, 2018 / 10:13 AM / a year ago

Chinese investment in U.S. falls amid asset sales, tighter scrutiny: Rhodium

SHANGHAI (Reuters) - Investment from China in the United States slumped in the first five months of the year as Washington intensified its scrutiny of Chinese projects and Beijing pressured big-spending firms to sell assets as part of its campaign to reduce debt risks.

FILE PHOTO: U.S. President Donald Trump and China's President Xi Jinping shake hands after making joint statements at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj/File Photo

According to data compiled by the New York-based Rhodium Group, Chinese net direct investment into the United States was negative by some $7.8 billion as of the end of May.

Chinese companies invested only $1.8 billion in greenfield projects and acquisitions in the United States between January and May, a drop of 92 percent from the same period in 2017, the Rhodium Group said on Wednesday.

Meanwhile, Chinese investors in America completed $9.6 billion worth of divestitures, with another $4 billion of sales pending, it said.

The drop in investment so far this year follows a steep fall last year as the Chinese government cracked down on bubbly outbound investment and Washington cranked up its scrutiny of Chinese acquisitions while adopting a more confrontational stance toward China.

Many of the Chinese companies that led a boom in investment in 2015-2016 - including HNA, Dalian Wanda and Anbang - “are now being forced to divest their overseas holdings by a broader financial tightening in China that is limiting the rollover of debt financing as well as specific regulatory action to reduce the leverage of systemically important private conglomerates.”

HNA sold off several of its U.S. assets, including office buildings in New York and San Francisco and its stake in Hilton Worldwide.

A number of transactions, including Ant Financial’s proposed $1.2 billion acquisition of Moneygram and HNA’s $200 million investment in Skybridge Capital, were killed by the inter-agency Committee on Foreign Investment in the United States, or CFIUS, in the first half of the year.

Rhodium also noted in the report upcoming new legislation that will enhance the scope of CFIUS scrutiny would raise hurdles for other types of investments such as venture capital.

The outlook for Chinese foreign direct investment in the United States was bleak, but there could be a silver lining in the brewing trade war between the two countries, it said.

“The volume and value of newly announced transactions suggest that Chinese investment levels in the U.S. will remain low in coming months,” Rhodium said, adding that the pipeline was thin.

While U.S. policies could present “substantial headwinds”, it said greenfield FDI could accelerate “if new tariffs incentivize Chinese manufacturers to localize production in the U.S. to ‘hop the tariff wall’.”

Reporting by John Ruwitch; Additional reporting by Kane Wu in Hong Kong

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