Focus on US and China investment policy

The Trump administration’s attitude toward Chinese investment in the US is being watched closely by the M&A community.  The question asked is whether the concern emanating out of Washington DC about US and Chinese trade relations will spill over into US investment policy. Chinese corporate acquisitions in the US have tripled since 2015 with Chinese companies investing a record 45.6 billion in 2016. To place this in context, today Chinese firms employ more than 100,000 people in the US while Chinese private investment now exceeds 100 billion dollars.

Our expectations are that Chinese corporate investment in the US will continue to grow rapidly in 2017. The strengthening economy continues to make the US an ideal home for international investors. In addition, access to US technology assets is an essential component of global corporate strategy. There are, however, real headwinds which need to be watched. The Chinese government is concerned that capital outflows will weaken the remimbi which is already trading at historically low levels against the dollar. In the US, the Obama administration and the Congress have blocked the takeover of two separate technology firms by Chinese private equity investors while Chinese companies are waiting for regulatory approval for acquisitions worth 21 billion dollars. President- elect Trump, meanwhile, has made the return of American manufacturing jobs lost to China and Mexico central to his economic argument. On many occasions he has decried the dumping of cheap goods from China, arguing for ‘fair trade’ and positing a
potential tariff scheme.

The fear that trade issues, capital concerns, and national security issues will lead to a deceleration in cross border investments is in our view inaccurate. The national interest of both the US and China benefit substantially through bilateral investment. Leaders of both nations are acutely aware of the economic value of the China US relationship. Since 2000 US multinationals have invested over 200 billion dollars in China while the Chinese government has purchased over 3 trillion dollars of US treasuries. National security issues will remain complicated. The transfer of technology from the US to China is a constant concern of the US Department of Defense .Chinese naval policy has also raised concerns in the Pentagon. This is mitigated by US reliance on China as a partner to help backstop its strategy to contain North Korea.
Chinese strategic and private equity firms are accelerating  M&A activity in the US in 2017. Digital marketing and IT projects and staffing firms fit a number of important criterions.

Digital firms provide technical talent and branding skills essential to success in the US market. IT project and staffing firms access a group of employees difficult to find and to retain in an extraordinarily competitive workspace. Expectations are that valuations will increase in 2017 as demand for these essential services remain at decade highs.

Steven Malin

September 24, 2017