China turns to Europe as US trade war hits investment
Report shows a dramatic swing in the first half of the year in FDI as Washington-Beijing standoff bites
The numbers are signs of the times. As the shockwaves from the trade war with the United States ripple across the global economy, China is increasing its investments in Europe and pulling back from North America.
In a report by the multinational law firm Baker Mackenzie, foreign direct investment in European Union countries was nearly nine times as much as in North America in the first half of the year.
The dramatic swing showed that FDI was down 92% in the United States to US$2 billion from last year’s first-half figure of $24 billion.
Newly announced Chinese mergers and acquisitions (M&A) into Europe were $22 billion compared with $2.5 billion in North America, while completed Chinese investments in EU nations hit $12 billion compared with $2 billion in the US.
“The scale and speed of the diverging trends revealed by these figures is remarkable,” said Thomas Gilles, the chairman of Baker McKenzie’s EMEA-China Group.
“At the same time, no one should be surprised by the direction of travel [as] China is actively courting the EU with offers of reciprocal market access in an attempt to show foreign investment is not a one-way street, while trade relations with the US continue firmly on a downward path.”
Sweden was the top EU destination for FDI with $3.6 billion, followed by the United Kingdom on $1.6 billion, Germany on $1.5 billion and France on $1.4 billion.
Globally, new M&A activity by mainland Chinese companies stabilized. After dropping from a peak of $145 billion in the first half of 2016, it reached $50 billion in the first six months of this year.
“After five years of similar investment levels in Europe and North America, Chinese investors are now clearly favoring Europe,” said Thilo Hanemann, a director of research company Rhodium Group, which helped compile the report.
At the heart of the switch in investment strategy is escalating trade tensions between Washington and Beijing.
Last week, China warned that the US was threatening to wreck the global economy after President Donald Trump announced new proposed tariffs on another $200 billion of Chinese imports.
This latest move in the trade conflict between the world’s two leading economies came just days after tit-for-tat duties on goods worth $34 billion took effect.
“Policy is weighing on deal-making,” said Rod Hunter, the international trade partner in Baker McKenzie’s Washington office. “It is no surprise that the escalating Sino-US trade dispute [is] impacting Chinese investments in the United States.”