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.

Better Rules, Long IPO Wait Mean Secondary Market Boom For ‘Unicorns’

After the debacle that preceded the initial public offering of Facebook Inc in 2012, when the company’s stock changed hands at wildly varying prices and with little oversight, the market in secondary trading in shares of hot startups has made a strong comeback.

Regulators and the startups themselves have gradually tightened rules governing buying and selling shares, while a growing number of startups delaying their IPOs amid a wash of eager private capital has created a huge swell of demand among both buyers and sellers.

“A lot of companies learned from the headaches that Facebook had to deal with,” said Brian Feinstein, a partner at Bessemer Venture Partners, which has purchased early investor and employee shares in secondary transactions.

The market serves a few functions, allowing employees and founders at highly valued private companies, such as home-renting service Airbnb and ride-services firm Lyft, to cash in on some of their paper wealth, and letting institutional investors get a piece of the action. Early investors who are tired of waiting for a payout are selling shares in secondary trades, too.

With such demand, transaction volume on the secondary market has soared.

A new report to be published this week by Scenic Advisement, a San Francisco-based investment bank set up in 2013 to facilitate secondary stock transactions, pegs the total value of tradable shares among the top private U.S. companies at $35 billion. That is more than three times the $11 billion assigned to the asset class in 2011, Scenic said in the report. The bank is projecting a further jump to $38 billion next year.

Secondary market transactions more than doubled to $544 million in the first half of 2016 over the same period last year, according to Nasdaq Private Market, one venue for such trades, set up in 2014. It expects further growth in 2017.

Founders Circle, which has made secondary trades in shares of DocuSign, Pinterest and others, estimates a total of about $1.2 billion worth of secondary transactions this year, according to co-founder and managing director Chris Albinson. That is a dip from $1.6 billion last year, largely caused by a dearth in trading in the first quarter, but Albinson expects a year-on-year increase to $1.4 billion in 2017.