US investment in China rises despite trade war, says consultancy

US investment in China rises despite trade war, says consultancy

Investments by US companies in China have grown this year despite the worsening trade war between Beijing and Washington, with American businesses lured by the country’s expanding consumer market.

US companies invested $6.8bn into China in the first half of the year, up 1.5 per cent from the average during the same period over the past two years, according to the Rhodium Group, a consultancy. 

Most of that total went into greenfield projects, such as electric vehicle maker Tesla’s factory in Shanghai, which will be the first wholly foreign-owned auto plant in China. Other large deals included US fund Bain Capital’s $570m investment in data centre provider Beijing Qinhuai. 

“Companies we speak to are still investing and many are expanding to second and third-tier cities,” said Ker Gibbs, head of the American Chamber of Commerce in Shanghai. “They tell us that the China consumer growth story is still strong.”

The data underlines the conflict between the strategy of many US businesses and the rhetoric of President Donald Trump, who on Friday said he had “ordered” American companies to leave China.

The Rhodium Group said that most of the US investment this year had come from multi-year construction projects. It said there had been some drop in the value of newly announced projects, particularly in the information and communications technology sector this year, in part due to the trade war.

The Rhodium Group figures differed from official data from China’s Ministry of Commerce, which estimated that US FDI fell 15 per cent in the first half of this year, down from $1.9bn a year earlier.

However, analysts said the Ministry of Commerce figures missed a number of projects while the Rhodium Group’s methodology was considered more reliable.

The ministry estimated that overall foreign direct investment into China rose by 7.3 per cent in the first seven months of this year from the same period a year earlier to $75.6bn. That increase was an acceleration from the 5.5 per cent growth in the same period last year.

“Our experience is that local governments are still very welcoming of American and other foreign investment. They often go out of their way to help companies,” said Amcham’s Mr Gibbs. 

Commercial real estate has become popular with foreign investors as funding constraints on domestic developers reduce valuations in the sector. Foreign investors announced deals worth $6.7bn in the first half of this year, according to consultancy CBRE, up from $2.6bn in the same period last year. 

While many manufacturers once saw China as an export hub, an increasing number are producing for domestic consumers. 

Consumer spending has accounted for more than 75 per cent of China’s economic growth so far this year.

According to an Amcham China survey in May, 35 per cent of US companies in China said they were adopting an “in China, for China” strategy to cope with the impact of tariffs.

Nike said in June it would “expand production in China for China”, while US chemical company Dow in June broke ground on a new silicone resin plant in eastern China to meet growing needs for high-performance materials in China. 

“Fortune 1000 companies in anything to do with high-end manufacturing . . . are doing deals and expanding their China operations,” said James McGregor, greater China chairman at consultancy Apco. “They know that China will continue to be the world’s most active manufacturing centre.”

Some manufacturers were relocating outside China but mainly to avoid rising wages, said Mr McGregor.

Source link