China pulls back from US tech

The number of Chinese greenfield FDI projects in the US’s IT and electronics sector hit a seven-year low in 2019 as the White House increased the scrutiny of foreign investment into the country’s tech industry. 

China sourced five projects in this sector last year, down from 14 projects in each of the previous two years, according to foreign investment monitor fDi Markets. In terms of estimated capital expenditure, Chinese greenfield investment in the IT sector in the US dropped for a second consecutive year in 2019. China’s $65.1m greenfield investments are an 87.6% decline from $523m the previous year. 

The declining trend of Chinese investments in the US is not just limited to greenfield projects. Publicly disclosed Chinese mergers and acquisitions in Silicon Valley declined by annual 84% in 2019, as Baidu, Alibaba and Tencent disclosed 12 investments totalling less than $560m. This is down from a peak of $4.7bn in 2015, according to PitchBook data.

Two years ago, the powers of the Committee on Foreign Investment in the US (Cfius) were expanded to scrutinise foreign investments in US companies making “critical technology”. For example, according to the Financial Times, Cfius blocked a proposed $1.3bn takeover of US semiconductor company Lattice by Canyon Bridge Capital Partners in 2017 because the investors were backed by China Reform Holdings.

Cfius’s powers have been expanded now the Foreign Investment Risk Review Modernisatin Act has come into effect. Under the new regulation, Cfius will have increased power to review investments in the US with “critical infrastructure and sensitive personal data”, as well as “certain real estate transactions”. The regulation also listed Australia, Canada and the UK as three countries (as part of a list that is subject to expand) who will be exempt from some Cfius transaction reviews.