Compounding the fallout of the US–China trade war, the global pandemic and recession have caused considerable speculation on the future of foreign investment and global value chains (GVCs). But though there is likely to be some permanent change, it will probably not be as great as politicians expect.
The United States is alarmed at China’s technological advance. It has instituted a range of restrictions on sales of high-tech products to China and Chinese investment in the United States, and is heavily taxing imports from China.
These measures were introduced by the Trump administration and are under review by the Biden administration — but most of them will likely remain in place, reflecting a bipartisan distrust of China.
China, in turn, has doubled down on industrial policies aimed at generating domestic innovation and limiting technology imports. The pandemic caused temporary global shortages for medical equipment, raising concerns about dependence on imports for key products and leading to calls for increased domestic production of these items.
Some aspects of trade and investment held up well in 2020
Despite these disruptions, some aspects of trade and investment held up strikingly well in 2020. US import prices were down only 1 per cent despite world GDP dropping 3.4 per cent, probably as a result of US economic stimulus measures. US trade data shows only a small decline in imports from China (3.6 per cent), despite 25 per cent tariffs and a sharp recession — Americans clearly still want Chinese electronic products, medical equipment and protective gear.
One flow that has been disrupted is China’s outward investment into advanced economies. China had been using high-tech acquisitions in the United States and European Union to enhance its own firms’ technical capabilities.
Both jurisdictions have tightened security screening and investment restrictions, reducing the inflow of Chinese direct investment by 50 per cent between 2016 and 2019. Meanwhile, Chinese direct investment into the four largest ASEAN economies increased by nearly 50 per cent over the same period. It is now on par with Chinese investment into the United States and European Union.
Direct investment into China has not decreased
Interestingly, direct investment into China has not decreased. In fact, 2020 saw record inflows. The US government has urged US firms to leave China and ‘re-shore’ to the homeland, but there is no evidence of this happening….
Source link : Clear skies over Asia’s new foreign investment landscape? by East Asia Forum
