China Investment In The U.S. Hit An All-Time High In 2016, But Don’t Expect The Same In 2017

Chinese investments in the U.S. hit an all-time high this year, surging 359% from the year before. But don’t expect a repeat performance in 2017. Thanks to growing U.S. protectionism and stricter Chinese capital controls, the flood of capital from China could slow down.

According to Mergermarket, Chinese companies invested $53.9 billion in the U.S. via 75 deals during the year (as of Dec. 12). Compare that to a year ago when Chinese investments in the U.S. totaled $11.7 billion. The steep increase in investments from China has stoked concerns about national security.

Since February, more than 150 Republican and Democrat members of Congress have written letters to the Department of the Treasury, urging change to strengthen the authority of the Committee on Foreign Investment in the United States, also known as CFIUS. The Government Accountability Office in October said it would examine whether CFIUS has enough authority keep track of the increasing number of deals by Russian and Chinese buyers. Adding to the momentum, the U.S.-China Economic Security Review Commission, in an annual report to Congress, recommended that the U.S. ban Chinese state-owned enterprises from buying U.S. companies.
The impact of Trump’s rhetoric 

“Changes are more likely today than at any other time since 2007, when CFIUS’s authority was codified by Congress. And, the impetus for possible change is broader than the President-elect’s forceful calls to change the U.S.-China trade relationship,” said Mario Mancuso, partner at Kirkland & Ellis in Washington, D.C. and former U.S. Under Secretary of Commerce, Industry and Security. Mancuso added that while fundamental change of CFIUS would need Congressional sanction, meaningful change could also happen via executive order.

President-elect Donald Trump’s anti-China rhetoric may also have some impact on Chinese investments. Though it’s unclear yet what he intends to do, Trump has accused the country of currency manipulation and threatened to slap steep tariffs on exports from China. He’s also strained relations with China by questioning the long-standing “One China” policy.

Doing Business In Saudi Arabia

Saudi Arabia has had a period of relatively high growth and economic progress over the past few years. It is predicted to grow by at least 3% for the next couple of years.

With 50% of Saudis under 25 years old the Saudi population is one of the fastest growing in the world. The current population of over 28 million is expected to increase to 29 million by 2020. The large youth population generally lacks the education and technical skills the private sector needs.

Massive investment will be required to meet the needs of this growing population. The Kingdom has substantially increased spending on employer led vocational training and education. This includes opening a number of new women’s colleges and the women only Princess Noura University.

The government is also encouraging foreign companies to invest in vocational and technical training in support of Saudisation.

The government’s budget for the 2015 fiscal year allocated the following to:

  • 25% to education and training
  • 19% to health and social development
  • 7.3% to infrastructure (a reduction of 5% on 2014 but still £11 billion)

The Saudi government is pursuing a strategy of economic diversification and reform to:

  • grow the private sector and reduce reliance on oil and gas
  • open up previously restricted industries to foreign investment
  • increase employment opportunities for Saudis

The government is also focused on getting private and foreign investment in important sectors such as:

  • petrochemicals
  • automobile assembly
  • biotechnology
  • other knowledge driven industries, particularly those involved in research and development and IT where there is an opportunity for knowledge transfer

BOJ Keeps Policy On Hold, Brightens View Of Economy

The Bank of Japan kept monetary policy steady and took a more upbeat view of the economy on Tuesday, reinforcing market expectations that its future policy direction could be an increase – not a cut – in interest rates.

Reflecting a pick-up in emerging Asian demand and factory output, the central bank upgraded its language to signal its confidence that the economy is headed for a steady recovery.

“Japan’s economy continues to recover moderately as a trend,” the BOJ said in a statement announcing the policy decision. It also offered a brighter view on exports and output to say they were picking up.

But the central bank warned the impact of U.S. monetary policy on global markets was among risks to the outlook, suggesting that the Federal Reserve’s interest rate hike cycle could disrupt emerging market capital flows.

As widely expected, the BOJ kept unchanged its pledge to guide short-term rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

“The global economy recovered earlier than expected and the yen is weakening. Tailwinds are blowing, and the BOJ can stand pat for a while,” said Hiroshi Shiraishi, an economist at BNP Paribas.

Underscoring its optimism on the outlook, the central bank even revised up its view on private consumption – considered a soft spot for the Japanese economy, the world’s third largest.

“Consumption is moving on a firm note,” it said, a brighter view than last month when it said there were some weak signs.

At the previous meeting on Nov. 1, the BOJ said the economic trend was for moderate recovery, but slowing emerging market demand was weighing on exports and output.

FOCUS ON KURODA

Financial markets are focusing on what BOJ Governor Haruhiko Kuroda will say at his post-meeting news conference about the recent rise in yields.

Japanese long-term interest rates have risen in tandem with global bond yields on expectations of steady U.S. interest rate hikes and the perceived inflation-stoking policies of incoming U.S. President Donald Trump.

This has tested the BOJ’s resolve to cap the 10-year Japanese government bond (JGB) yield around its zero percent target.

That in turn has led to some market expectations the BOJ may raise its target for the 10-year JGB yield, which briefly hit 0.1 percent last week, as early as next year.