The Chinese government has announced that it will allow foreign firms that are not in the investment business to invest in domestic companies.
The move aims to boost cross-border investment and trade, as well as bring in more foreign capital, as China deals with the ongoing trade war with the United States. In fact, economic growth in China is at a near-30-year low in the third quarter as tariffs have affected factory production.
To try to boost its economy, Beijing vowed last month that its financial markets would stay open and foreign investment will be welcomed despite the fact that U.S. President Donald Trump wants to curtail funds. In fact, the Trump administration is reportedly considering the potential blocking of all Chinese investments, saying that it wants to protect American consumers.
“Chinese efforts to enhance reform and opening will be slowed down in the short term, but it will never be stopped,” Liao Qun, Hong Kong-based chief economist with China Citic Bank International Ltd., said last month. “China could explore European, Southeast Asian and the Belt and Road markets in lieu of the U.S.”
In the meantime, the flow of Chinese cash into America has fallen almost 90 percent since Trump became president, impacting numerous industries, including Silicon Valley startups, the Manhattan real estate market and state governments. In addition, Chinese investment in the 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.
“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. “The U.S. doesn’t trust the Chinese, and China doesn’t trust the U.S.”