Chinese Firms in the US-China Trade War

Abstract

This chapter examines China’s investment activities, utilizing project-level data available on greenfield investments that reflect how Chinese firms have responded to the US-China trade war. Investment patterns indicate some degree of anticipation from the private sector. Overall investment patterns drop sharply before the actual start of the trade war. The decline coincides with the start of the Trump Presidency in the United States and the initiation of the Section 301 investigation. Chinese firms, and possibly firms more generally, respond first to the overall political climate and are well ahead of concrete policy changes. There are also notable changes in the regional distribution of Chinese firms’ investments. Asia’s attractiveness as an investment destination grows with the escalation of trade tensions, but there is also increased diversion to Europe for locating Chinese investment. There is a marked decline in greenfield investment in the United States, and Russia emerges as an important recipient of Chinese greenfield investment. Manufacturing, electricity, and construction continue as mainstays of Chinese investment choices, and similarly, real estate; coal, oil, and gas; and metals are top investment sectors for Chinese firms.