Businesses delay investments as US-China trade tensions grow

“Batten down the hatches” is the central message from Chinese companies operating in the US, buffeted by increasing regulatory restrictions from both governments and a tightening labor market.

Investment by Chinese companies in the United States has fallen by nearly 90% since its peak in 2016, including a sharp drop in 2018 and early 2019, with more companies reporting lower revenues and thinner profit margins than a year ago.

Photo credit: nk2549 / 123RF Stock Photo

“The trade war creates a less welcoming business environment for Chinese companies,” said Chen Xu, chairman of the China General Chamber of Commerce-USA and president and chief executive of Bank of China USA, in introducing the chamber’s annual business survey, which was released on Monday. “This environment’s uncertainty shakes our members’ confidence and discourages them from making further investments in the US.”

Half of the respondents in the survey – conducted in February and March – felt the investment and business environment had deteriorated in 2018, more than double the 23% that saw it that way last year. With investment decisions lagging broader shifts in US-China relations, the report’s relatively downbeat findings likely understated the mood given the bad news, since members were surveyed a few months ago.

In a mirror image, the most recent American Chamber of Commerce in China survey of US companies operating on the mainland, released in February, was similarly downbeat, referring to relations as a “ticking time bomb.”

On Monday, US President Donald Trump renewed his threat to put tariffs on another US$300 billion of Chinese goods in a CNBC interview, the latest salvo of the tit-for-tat trade war.

Investment and security-related regulations are tightening on both sides of the Pacific.

Distrust has gone well beyond trade and the military to include education, visa policy, and people-to-people exchanges, with little prospect of relief.

“This year marks the 40th anniversary of US-China diplomatic relations,” the China General Chamber survey said. “At this moment, our relationship is being tested.”

A third of companies predicted that conditions would get worse over the next two years, up from 12% last year.

The 240 responses from Monday’s survey that involved Chinese companies such as Fuyao Glass, Hisense, and International Vitamin, out of a pool of 1,500 chamber members, suggested that most were managing their existing US operations but delaying on putting more new money on the table.

Respondents were particularly concerned by higher tariffs and tighter US investment rules, especially where hi-tech companies faced tougher scrutiny from the Committee on Foreign Investment in the United States (CFIUS), part of the revamped Foreign Investment Risk Review Modernisation Act.

While Chinese investment has declined globally in recent years, the drop has been sharper in the US than Europe given tighter scrutiny by Washington over China’s state-led campaign to acquire sensitive Western technology.