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Behind the US-China Trade War – Billions Flow into Investments

While mounting evidence of a protracted US-China trade war increases each day, the realisation of the economic, political and even cultural rivalry between the two largest economic powers on the planet is now becoming front-page news.

But the war of narratives on trade does not give the full picture as billions of dollars of cash is flying in and out of China, and the Asia region for that matter,  in he world of technology.   

US and Chinese tech firms are buying up rivals in Asia and in some cases, US and overseas investors are investing directly – while they try to ignore trade talks and economic rivalries – into China to buy everything tech related.

Direct investment into Greater China and the Asian region is exploding. And who is leading that investment? The United States. So beyond the “trade talks” we read about in the press, there is so much more at stake if trade fear bleeds into investment fear. 

We are not suggesting that the trade war is insignificant as the US negotiators echo the same complaints as the European Union and Japan, that is difficult market access and forced technology transfer by China (technology must be protected, we will discus this later in the presentation), but the massive and very dynamic flow of capital investment and the thousands of tech firms expanding in Asia is increasing by the day, as we point it out in this presentation.

US investment in China has more than doubled since January of 2019, mainly in the field of high tech. Investment from the United States into China, called foreign direct investment (FDI), increased by a whopping 124.6% versus January of last year. With the current trade war escalating, this number could start to fall but there will be “deals” within the trade agreement driven by Trump that will protect investors and their technologies.

According to the Ministry of Commerce in Beijing, the high tech industry saw a massive 40.9% spike higher from foreign investors in that same period year-on-year.

The increase from the US was 124.6%, with the Netherlands increasing by 95.6%, the United Kingdom by 13.7% – so it seems that the US and Europe continue to drive the key investment capital into China.

The investments that are attracting the most attention are information services which saw an increase of 168.6 percent with US and European firms leading – this clearly makes sense as our ability to access volumes of  information on our hand-held and laptops increases each day.

As these investments increase they need to be protected, especially intellectual property. And it is clear that the trade war is starting to change the calculus of how China builds its tech industry. China is now pivoting away from reliance on the US and Europe and is being forced to relay on its own home grown investments to advance research. This topic will be featured in a future video.

So of course, there is a key overlap as the US and Europeans have complained about the Chinese state-owned enterprises having access to government subsidies, the benefits from forced technology transfer, and this is compounded by a poor legal system of punitive damages for intellectual property infringements.

Adjustments in investment policy – having China become fair – to the US and other countries in one way by protecting their technology from theft is one key point that US Trade Representative Robert Lighthizer has impressed upon Chinese Vice-Premier Liu He.

There will be ongoing discussions between the US and China about the trade of merchandise and goods, as China and the US work to address the massive trade deficit, but note that that the $234 billion US FDI (foreign direct investment) into China in 2018 has technology benefits to both China and the US and if this cash flow suddenly stops – both nations will suffer.

Team Classiarius



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