Chinese Investment in North America and Europe Slumped in 2018

(Bloomberg) -- Chinese investors continued pulling back money from overseas, with less than a third as many new deals in 2018 as there were in 2017 in North America and Europe, according to a new report.

Once sales and other divestments are factored in, Chinese companies have $8 billion less invested in the U.S. at the end of 2018 than a year earlier, However, new Chinese direct investment in Canada more than doubled from a year earlier, and rose in some other European nations, Baker McKenzie and the research firm Rhodium Group wrote in a report.

Underlying that trend were Chinese efforts to control debt and capital flight, as well as stronger scrutiny from foreign governments. Chinese total outbound investment has slumped in the wake of a crack down on capital outflows that began in 2016, and the increased U.S. scrutiny on deals from China has exacerbated that. The U.S. is now a much riskier investment for Chinese firms since the start of the trade war, according to a state think tank.

"Trade barriers and a generally more confrontational stance toward China have created tremendous uncertainty for Chinese companies in the U.S., dampening investor appetite and increasing the risk perception of U.S. sellers," Rhodium’s Thilo Hanemann, Cassie Gao, and Adam Lysenko wrote in a separate report on Sunday.

If the trade talks between the two countries reach a sustainable solution, they expect an increase in deals in sectors such as consumer goods or healthcare, which aren’t sensitive for national security.

Such trends are based on deals completed, and that could be months or even years after acquisitions are announced. There was more than $20 billion of pending transactions in Europe at the start of 2019, and less than $5 billion in the U.S.

In Europe, while the U.K., the Netherlands and Switzerland received less Chinese investment last year, smaller economies in the east got more deals. From a lower base, Croatia saw an almost fourfold increase, Slovenia had a 10-fold jump, and deals in Hungary and Poland more than doubled. But the new European rules screening foreign investment may cramp that.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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With assistance from Bloomberg