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On Monday, April 19, the Atlantic Council’s Adrienne Arsht Latin America Center and the GeoEconomics Center, in partnership with Baker McKenzie, hosted a public event to discuss recent trends of Chinese foreign direct investment (FDI) in North America and Europe. The event marked the launch of Baker McKenzie’s latest report, Reassessing the Landscape for Chinese Investment in North America and Europe. Driven largely by the COVID-19 pandemic’s disruption, and in part by regulatory changes, FDI flows into North America and Europe dropped by $31 billion last year to $16 billion. The discussion focused on the major factors, such as the pandemic and political and macroeconomic headwinds, that impacted deal flows in 2020, while also looking ahead to the new dynamics underway with a new administration and a new Congress in Washington. Pepe Zhang, associate director of the Adrienne Arsht Latin America Center, moderated the conversation.
Thilo Hanemann, partner at the Rhodium Group and senior policy fellow at the Mercator Institute for China Studies, noted that despite the massive disruptions in cross-border deal flows due to a global pandemic and complicated political relationships between North America and China in 2020, Chinese investment in the region increased by almost 40 percent. Hanemann indicated that this was a testament to investors being “able and quick to adapt to new regulatory challenges or political situations.” However, the overall level of Chinese FDI in North America remains relatively low given the size of the economies involved.
Regarding the broader US-China relationship and how it has evolved with a new administration in Washington, Rod Hunter, partner at Baker McKenzie and former senior director for international economics at the US National Security Council, noted that the Biden administration is making efforts to re-align expectations for US-Sino relations. This, according to Hunter, could potentially lead to a more level and predictable relationship moving forward between the two largest economies in the world.
Dr. Alexis Crow, lead for the geopolitical investing practice at PricewaterhouseCoopers and nonresident fellow at the Atlantic Council, discussed the broader context that underpins China-EU investments in recent years. Dr. Crow elaborated on the distinctions between sticky vs fickle capital and pure investment vs strategic mindset. On strategic investing, she mentioned that much of the Chinese outbound FDI in Europe has been driven by China’s need to strengthen export ties or by its innovation-led growth model. Within Europe, great subregional heterogeneity exists in terms of country-specific sectors/interests with Chinese FDI.
Echoing Dr. Crow’s comments, Hanemann pointed to Beijing’s policy to curb “irrational investment” in the more recent period. This has derived from the fact that in previous years, Chinese investors had not always managed to acquire assets at the most attractive valuations, prompting Beijing to exert greater risk control. Hanemann also explored the current state of play of the EU-China Comprehensive Agreement on Investment (CAI), who ratification has become more uncertain given recent events.
Adding to Dr. Crow and Hanemann’s comments, Hunter argued that in addition to capital availability (“outbound conditions”), a key factor anchoring Chinese deal flows abroad is the regulatory environment (“inbound conditions”), which by and large is stabilizing relative to the 2018-2019 period. Further, Hunter noted the regulatory differences between the US and Europe when it comes to deal making with China, but underscored that the direction of movement is largely the same (i.e. more regulatory tightening). He also highlighted the increasing attention of national security implications of FDI and how the pandemic has exacerbated these concerns further in terms of supply chains, which may lead to additional regulatory scrutiny of individual transactions in the long run.
To conclude, Hanemann ended the discussion with a call to pay special attention to the path China’s economy will take structurally, especially the interplay between its public vs private sectors, and how this may affect the changing dynamics in the global political and economic order.
Amidst a global collapse in FDI, China’s total outbound investment fell 45 percent to $29 billion in 2020, continuing the downtrend seen since 2017. Europe and the United States both recorded under $10 billion of Chinese FDI inflow – a nearly 50 percent annual decrease for Europe and a 40 percent US increase. In what ways did major factors, such as the pandemic and political and macroeconomic headwinds, impact deal flows in 2020? Looking ahead this year, could new dynamics be underway, with a new administration in Washington and the EU-China Comprehensive Agreement on Investment (CAI)? How are regulatory regimes and investor appetite evolving in today’s uncertain international environment?
Join the Atlantic Council on Monday, April 19, 2021, from 4:00 to 5:00 p.m. EDT, for a public, virtual discussion on recent trends and the future outlook of Chinese FDI in North America and Europe.
The public event will also mark the launch of Baker McKenzie’s latest report: Reassessing the Landscape for Chinese Investment in North America and Europe.
Dr. Alexis Crow
Lead, Geopolitical Investing Practice
Senior Policy Fellow
Mercator Institute for China Studies
Former Senior Director for International Economics
US National Security Council
Adrienne Arsht Latin America Center
This event is presented by the Atlantic Council’s Adrienne Arsht Latin America Center and the GeoEconomics Center.
The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.