The China factor most people are missing

While everyone has been paying attention to the battle over trade going on between the US and China, there’s another major development in the relationship between the world’s two biggest economies.

Chinese investment in the US has plummeted.

According to a recent report by the National Committee on US-China Relations, Chinese direct investment here fell by 80 percent in 2018. And, according to the committee, the amount of direct investments held by the Chinese in the US actually declined when you take divestitures into account.

And that was in 2018 — before the tariff battle between the US and China really heated up.

China also holds $1.3 trillion worth of Treasury securities. But that’s another issue altogether.

In addition to buying our government’s bonds, the Chinese also invest in US companies. That’s what they mean by “direct investments.”

But there was only $5 billion in direct investments in the US by the Chinese in 2018, compared with $29 billion in 2017 and $46 billion in 2018.

The tariff squabble, which has seen the US raise the tax over the past week on Chinese goods coming into the US and then China retaliating, will probably only make the direct investment situation even worse.

Why the drop in direct investments? It’s because the Chinese financial system is having problems and the Beijing government has forced companies in that country to clean up their balance sheets. In order to do that, they’ve had to become less adventurous with foreign investments.

Also, the Chinese leadership would prefer that its companies invest in China rather than overseas.

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