Shrinking investment opportunities in the domestic market amid an economic slowdown and a slew of remedial measures undertaken by the government, along with a weakening yuan against the U.S. dollar, have caused a flood of Chinese private investment into the U.S. in recent months, experts said on Tuesday.
Recent data showed that outbound Chinese investment, especially those from private companies, to the U.S. continued to rise in the first half of 2016 at a record pace, paving the way for new record highs for the whole year.
That trend, accompanied by declines in private investments in domestic projects, has sparked concern over the outlook of the Chinese economy and capital outflows that could exacerbate the current economic slowdown.
In the first six months of the year, Chinese companies invested nearly $29 billion in the U.S., already surpassing the previous full-year record of $18 billion in 2014, Derek Scissors, a resident scholar at the American Enterprise Institute (AEI), wrote in an article on the Wall Street Journal on Thursday, citing a report from the AEI.
And for the first time, outbound investment by private companies is larger than that by State-owned enterprises (SOEs), according to the report.
Rush to get out
The surge in outbound Chinese private capital has been attributed to the slowing economy, which, official data showed, grew by 6.7 percent in the first half of the year, as well as the government's measures to revive it.
"Private companies face a tough situation in the domestic market. There are just not many good projects for them to invest in," Chen Fengying, a research fellow at the China Institutes of Contemporary International Relations, told the Global Times on Tuesday.
And that has been caused by the overall slowdown in the economy as well as the government's response, including cutting overcapacity, destocking and deleveraging.
"All these measures are not favorable to the investment environment for private companies," said Chen. Cutting overcapacity and destocking has limited the number of projects and competition from SOEs has further squeezed access to projects with high returns for private companies, while deleveraging measures have damaged the ability to raise funds, according to Chen.
Another factor that has led many Chinese companies to rush into the U.S. market is the depreciation of the yuan against the dollar.
"With the yuan depreciating and the dollar strengthening, there is no doubt that some companies want to acquire assets in the U.S. to maintain or increase value," Wang Jun, deputy director of the Department of Information at the China Center for International Economic Exchanges, told the Global Times on Tuesday.
On Tuesday, onshore yuan traded between 6.6886 and 6.7011 per dollar, after depreciating beyond the 6.7 per dollar mark for the first time since November 2010, according to the media reports.
Double-edged sword
The increase in outbound Chinese investment is a double-edged sword that could both hurt and benefit the Chinese economy, experts noted.
"This definitely has a negative impact on the growth of the Chinese economy," said Chen. "Investments, including private investment which accounts for over 60 percent of the total, are a key engine for the Chinese economy."
Although private investment in fixed assets grew 2.8 percent year-on-year in the first six months of the year, the pace is 3.6 percentage points slower than the same period last year, according to data released by the National Bureau of Statistics on Friday.
But some overseas investments, particularly in high-tech sectors, could also benefit the transformation of the Chinese economy, because they could expand the market for Chinese businesses and bring advanced technology back, Chen noted.
Wang also remarked that while some tend to focus too much on the negative impact of overseas Chinese investment on the economy, in actuality the economic growth in the second quarter will not be derailed by this surge.
"As Chinese companies have grown exponentially in recent years, they simply need to expand to a larger market, and with recent strong signs of the U.S. economy recovering, it is natural that investment there will increase," Wang said.
"As to domestic economic growth, the government will put in more investment to maintain reasonable growth."
