Investing in No Chinese Investment

These days “Washington” seems to think little of Chinese investment. It does not matter if it is Chinese foreign direct investment (FDI) in the United States (US) or US FDI in China. Importantly, the core concerns in each case are different. The former largely has been a security issue because of fears China is using outward FDI (OFDI) in the US to obtain key technologies, gain control over “vital” infrastructure, or gain a toehold near strategic locations. The latter largely has been an economic concern because of the putative damage it has done to US manufacturing, employment, and so on. American pressure in both areas has been increasing. Pressure regarding Chinese OFDI (COFDI) is witnessed in the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA) and proposed implementing rules that would broaden reviewed investments. Now, US investment in China seems to be the target of the day with US President Donald Trump, in late August, “ordering” American companies, pursuant to the 1977 International Emergency Economic Powers Act (IEEPA), to bring their China FDI back to the US. Despite doubts about the legality of such an order, its political feasibility, and the potential for its implementation and real worries about its adverse effects, Trump’s words, as per usual, greatly increased anxieties. Recently, American portfolio investment in China and Chinese portfolio investment in the US have become targets with reports the US would work to prevent Chinese companies from listing in the US, later denied, and also constrain US (e.g., government pension fund) investments in China. The benefits of the status quo and the costs of decoupling are mostly clear. The benefits of a full decoupling, though, remain far from clear. The “Chosen One” has much educating to do, though such teaching, as opposed to tweeting, is not his style.