Hello, I am from Italy. I was quarantined there for five days before visiting my family. Rome is trying to control the delta variant of the coronavirus, which threatens the economic recovery of many countries in Europe.

We are not the only ones who lack freedom due to the pandemic. Today’s main story looks at how China’s outbound investment is rapidly declining, constrained by increased domestic and investment destination scrutiny. This trend is in sharp contrast to expectations of a consumer boom, where Chinese groups are feeding on troubled companies in developed economies. It also runs counter to the strong rebound in global mergers and acquisitions.

The fear behind the decline in foreign and domestic FDI

China’s role in global investment has greatly diminished.

Its greenfield foreign projects for the 12 months ending in May have been almost halved compared to the previous 12 months.

This is much worse than the nearly 30% decline in the world over the same period, which is about 25% in the United Kingdom, the United States and major European economies.

The scale of decline means that Chinese companies have fallen from the sixth largest investor in greenfield projects to ninth in the last 12 months, surpassed by Switzerland, the Netherlands and Spain.

China’s outbound mergers and acquisitions have also declined. So far this year, this number has fallen by 37% compared to the same period in 2019, while transaction volume has stagnated.

In this context, the rebound in M&A activity surprised many people and pushed the value of transactions to multi-year highs.

China was the only major global economy that grew last year. So what is going on?

Part of the story is the security issue of foreign governments.

For example, the British government recently intervened obtain The largest silicon wafer manufacturer in the UK. Canada and Australia blocked the acquisition of two construction companies. Italy and Germany respectively vetoed China’s acquisition of a national semiconductor company and a satellite group.

The stricter investment review framework has already had an impact-including the UK National Security and Investment Act, which will become law later this year. Baker McKenzie partner Sunny Mann said: “Once the rules take effect, the UK government will retain the ability to request review of any transactions completed since the UK government issued the bill in November 2020.” “This has prompted many acquirers to start voluntarily to new establishments. ’S investment screening department submits its proposed investment.”

The steps in the UK follow similar laws European Union with AustraliaEarlier this year, US President Joe Biden signed an executive order prohibiting investment in 59 Chinese companies on security grounds, including telecommunications equipment manufacturer Huawei and China’s largest chip manufacturer SMIC.

Trends are well documented recent The UNCTAD’s annual report tracks global investment and counts 50 restrictive measures in 2020, compared with 21 in the previous year, mainly driven by “national security concerns about foreign direct investment in sensitive industries”. Many were introduced by advanced economies.

But this is far from the only reason. There are also factors closer to home.

Thilo Hanemann, a partner at the think tank Rhodium Group, said that although the increase in overseas supervision and political review is a factor, “the decline in Chinese outbound investment since 2017 has been to a large extent It’s a Chinese story”.

He said: “Beijing is re-implementing capital controls because the scale of the outflow is too large to be comfortable.” In the past two years, the crackdown on large private conglomerates such as Alibaba, tightening market liquidity, and concerns about access to sensitive personal data have become a reality. Additional drivers.

The think tank U.S.-China Investment Project pointed out in a report recent According to the report, “Beijing has always put stability in the first place during the entire pandemic. Despite the huge trade surplus and the pressure of RMB appreciation, it still refuses to relax restrictions on foreign investment by private companies.”

“In China, the balance achieved by leaders between domestic financial stability and opening up will shape the investment landscape,” the report said.

The transaction volume so far this year has fallen by more than four-fifths from 2016 levels. Hanemann stated that it is “unlikely in the near future” to return to these high levels.

Max J Zenglein, chief economist at the Mercator Institute of China, a think tank, agrees that a rebound is unlikely in the next few months. Although the general interest in acquiring foreign technology and ensuring market access has not changed, “the changing political environment requires some adjustment.” Therefore, he expects changes in the structure of China’s FDI, such as increasing venture capital.

Zeng Lin said that China may also see “more localization of key technologies and R&D,” because “the absorption of global value chains into China can be seen as a direct response to the increase in economic defense measures that complicate China’s overseas investment.”

The pandemic has spawned a trend to transfer investment back to the country. At least in China, we are increasingly convinced that it will live longer.

Trade ties

Brussels Not surprisingly, Say it Will not renegotiate the Brexit agreement. This rejection was issued by Lord David Frost, the Secretary of State for Brexit paper Appeal to the so-called Northern Ireland Agreement In 2019, a renegotiation agreement was reached with the European Union.Philip Stephens think The Johnson administration’s actions were malicious and took a position that it knew the EU could not accept.

Tesla have agree Buy nickel for its batteries BHP Billiton, The world’s largest miner because it wants to lock in supply Metals not controlled by China.

Reuters reported Meat industry Yes caveat that UK supply chain Due to labor shortages associated with the pandemic, it is now at risk of failure.

As Beijing and Moscow strengthen diplomatic relationsThe city of Blagoveshchensk on the Sino-Russian border is seeking Trade and tourism promotion (Nikkei, $, subscription required). TSMCThe world’s largest custom chip maker may put its first chip factory in Japan into operation As early as 2023 (Nikkei Index, U.S. dollar). Its purpose is to supply the electronics group Sony.

This Peterson Institute for International Economics Have a Interesting criticism International Trade Commission Evaluation Negotiations based on some agreements that have expired Trade Promotion AgencyThe assessment stated that the U.S. economy grew by 0.5% as a result of these transactions. Claire Jones