Analysis: Barriers to China-U.S. investments could outlast Trump

In this news, we discuss the Analysis: Barriers to China-U.S. investments could outlast Trump.

HONG KONG / NEW YORK (Reuters) – President Donald Trump has raised hurdles for Chinese companies looking to invest or raise funds in the United States, which will have a lasting impact even if he does not win a second term , according to negotiators and policy experts.

Chinese acquisitions of U.S. firms fell to $ 1.86 billion last year, a tiny fraction of the $ 61 billion they totaled in 2016, when they were at their peak just before entry according to Trump, according to data from Refinitiv.

Chinese venture capital investments in the United States, which peaked in 2016 at nearly $ 15.7 billion, totaled just $ 6.7 billion as of October 27, according to PitchBook data.

China’s foreign direct investment in the United States has declined 90 percent to $ 4.7 billion so far this year from 2016, according to the Rhodium Group.

Much of this is the result of Trump’s policies. The United States has blocked many Chinese acquisitions, especially US tech companies, for national security reasons, and has even ordered some Chinese companies such as the owners of social media apps TikTok and Grindr to divest them. U.S. exchanges raised their listing standards after scores of investors were torched in audit scandals involving Chinese companies, including the operator of the coffee chain Luckin Coffee. And Chinese nationals have found it more difficult to obtain US work permits.

This trend could continue even if Sino-US tensions over sensitive issues such as trade and Hong Kong’s future ease, negotiators say. Indeed, concerns about Chinese companies abusing their technological prowess and deceptive investors are shared by Republican and Democratic U.S. lawmakers.

“The United States no longer sees China as a partner, but as an enemy and a threat … America has become a very hostile ground to all things Chinese,” said Fred Hu, president of the company. Chinese private equity Primavera Capital Group, which has investments in US companies. . He added that US-China relations are unlikely to improve in the short term.

Under Trump, the Committee on Foreign Investment in the United States (CFIUS), which reviews the agreements for potential national security risks, has hardened its stance on Chinese companies.

CFIUS reviews are confidential, and the secret government committee does not disclose the number of transactions it blocks each year. But in its annual reports to the US Congress, the CFIUS revealed its extensive review of the Chinese accords; it reviewed 140 requests for an agreement from Chinese buyers in the first three years of the Trump administration, more than any other country, compared to 20 such requests in the first three years of Barack’s administration Obama. This despite the drop in Chinese requests to CFIUS for American agreements, dropping from 60 in 2017 to 25 in 2019.

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Among the deals CFIUS blocked under Trump, Chinese financial technology giant Ant Group has acquired US money transfer company MoneyGram International Inc. MGI.O and Chinese investment fund for $ 1.2 billion. semiconductors Unic Capital Management, the US $ 580 million acquisition by US semiconductor testing equipment company Xcerra Corp Some Chinese acquirers also abandoned their US acquisitions before CFIUS blocked them.

“CFIUS has made big changes to acquisitions by Chinese companies overseas, in the tech sector in particular,” said Peter Kuo, partner of the China-backed private equity fund Canyon Bridge, which has attempted to ” acquire US $ 1.3 billion from US chipmaker Lattice Semiconductor Corp LSCC. O was upset with CFIUS in 2017. The fund is now focused on investing in Chinese companies.

The American crackdown has spread to venture capital investments. Many Chinese and some state-funded venture capital funds, which flocked to Silicon Valley several years ago in search of reasonably priced unicorns, have left the United States in the past two years, the CFIUS having also examined significant minority investments. Some Chinese investors in US venture capital firms also pulled back.

“Now we don’t have any Chinese investors in our fund,” said Edith Yeung, general partner of Silicon Valley-based venture capital fund RaceCapital. She said she had to reject many Chinese investors from her fund due to regulatory risk.

SCRUTINY IPO

Trump said this year that he is also considering “very strongly” the possibility of removing Chinese companies that do not meet US accounting standards from US stock exchanges, but has not acted on the threat.

While the total value of Chinese companies listed in New York has so far this year reached $ 2.5 trillion – almost double the total four years before Trump took office – the Nasdaq has put update its rules to make it harder for Chinese small businesses to float. their exchanges.

As a result, only five Chinese IPOs under $ 25 million landed in New York this year, up from nine last year.

Policy experts said the United States’ deep mistrust of China’s economic might, technological advancements and accounting standards would likely result in many barriers to cross-border investment remaining, even if the Democratic challenger of Trump, Joe Biden, succeeds him in January.

“Our view is that the US containment on China is bipartisan,” Natixis economists wrote in a note last week.

Reporting by Kane Wu in Hong Kong and Echo Wang in New York; Editing by Greg Roumeliotis and Christopher Cushing

Original © Thomson Reuters

Originally posted 2020-11-03 00:26:12.

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