Trade War Slows Flow Of Cash From China To US

The flow of Chinese cash into America has fallen almost 90 percent since Donald Trump became President.

The decline has impacted numerous industries including Silicon Valley startups, the Manhattan real estate market and state governments. As for the cause, blame it on a combination of stricter regulatory scrutiny in the U.S. as well Beijing’s tougher limits on foreign spending.

“The fact that foreign direct investment has fallen so sharply is symbolic of how badly the economic relationship between the United States and China has deteriorated,” said Eswar Prasad, former head of the International Monetary Fund’s China division, according to The New York Times. “The U.S. doesn’t trust the Chinese, and China doesn’t trust the U.S.”

As a result, Chinese investment in the United States fell to $5.4 billion last year from a high of $46.5 billion in 2016, a decrease of 88 percent. And preliminary figures through April of this year show only a small boost from last year, with transactions at $2.8 billion.

“I certainly hear in conversations with investors a lot of concern about whether the U.S. market is still open,” said Rod Hunter, a lawyer at Baker McKenzie who specializes in foreign investment reviews. “You have a potentially chilling effect for Chinese investors.”

The real estate market has felt the effects. For example, China’s HNA Group was hit with a $41 million loss on a Manhattan high-rise after regulators forced it to sell the property because of security concerns about its proximity to Trump Tower. Chinese investors are also showing less interest in residential real estate, with the purchases of homes in America by Chinese buyers falling 56 percent in the year to March.

“The magnitude of the decline is quite striking, implying less confidence in owning a property in the U.S.,” said Lawrence Yun, chief economist at the National Association of Realtors.

The financial sector has also been impacted. John Kabealo, a Washington-based lawyer who specializes in cross-border transactions, said that American private equity funds will likely shy away from partnering with foreign funds when making acquisitions.

“I think there’s a whole lot of concern in the fund world right now,” Kabealo said. “Funds still want to take Chinese money, but they’re being much more cautious in the way that they do it.”


Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.