FDI Flat, VC Strong: China’s Investment in the US in 2021

Chinese foreign direct investment in the US fell from $7.5 billion in 2020 to $5.7 billion last year, marking a ten-year low. Investment was led by a handful of deals in non-sensitive sectors: entertainment, consumer products, and real estate. The muted FDI picture stands in contrast to Chinese venture capital investment in the US, which accelerated to a record $3.4 billion last year. FDI trends are likely to persist in 2022, and venture capital activity will likely moderate amid a broader slowdown in the US venture capital market.

Posted April 27, 2022
Share
Facebook Twitter Pinterest

Beijing’s Russia Reckoning

Russia’s military challenges in Ukraine and the concerted Western response are forcing hard choices in Beijing. Regardless of how China balances its support for Russia and its long-term interests in access to the global financial system, Beijing’s decisions in the coming months will be carefully scrutinized.

So long as the G7 consensus on sanctions against Russia holds and the United States can credibly threaten secondary sanctions on Chinese institutions, China is likely to prioritize those institutions’ continued access to US dollar and euro financing. This means it is likely to encourage its big banks to comply with the financial sanctions aimed at Russia and tread carefully in helping Moscow navigate export controls on key technologies. Beijing will want to avoid becoming a bigger target for Washington. While there is some space for China to continue non-dollar trade with Russia through banks that are less exposed to sanctions, there are limits to how much Beijing can ease Moscow’s economic stress through trade.

Posted March 3, 2022
Share
Facebook Twitter Pinterest

Demographic Change and China’s Potential Growth

China’s 2020 census data, released in early May, shocked the country’s leadership, prompting dramatic changes in China’s family planning policies to encourage additional births. The numbers suggest that China’s population will peak over the coming decade. Its working-age population has been in decline for several years already. This note explores the links between demographic trends and economic growth and the implications of China’s low birth rate for GDP over the next two decades. Among our findings:

  • The economic literature suggests that the demographic changes China is facing will produce falling savings rates, lower investment rates, lower long-term equilibrium interest rates, reduced productivity growth, and deflationary pressure.
  • Japan’s experience with a sharp reduction in its working age population over the past two decades offers a cautionary tale for China, consistent with the economic literature.
  • China has policy options to mitigate the effects of demographic changes, but China’s long-term growth potential is likely to fall below 4 percent, with risks to the downside.
Posted June 27, 2021
Share
Facebook Twitter Pinterest