Steep Drop in US-China Tech FDI Contributing to Decoupling, Report Says

Foreign direct investment between the U.S. and China involving technologies dropped 96% from 2016 to 2020, while overall investment dropped by about 75%, Bain & Company said in a Sept. 20 report. The consulting firm pointed to various potential reasons for the steep decline, including the spike in investment and export scrutiny by the U.S., which has strengthened its foreign investment screening tools and export controls in recent years to specifically target China (see 2001140060 and 2103030057).

Decoupling between the two countries could grow more severe if the Biden administration can convince allies to follow its lead, the report said. “America is trying to urge a coalition to present a united front against China,” it said. “If successful, this could make it easier to limit or block the sale of critical technologies to China.” But Europe’s willingness to adopt stricter measures “isn’t yet clear,” the report said, which is contributing to the uncertainties “clouding the picture for technology executives.”

But even as the U.S. tightens its export controls for shipments to China, China has sought to adopt a “more friendly approach to multinational corporations” to attract their business and investment. “That has led to a surprising development,” the report said. “Many multinational technology companies have found doing business in China is arguably getting easier, at least for the time being.”

Despite this, Bain & Company stressed that decoupling between the U.S. and China will “define the future” of their relationship and will continue to cause business challenges for companies operating in both countries. “The two nations’ recent moves signal that decoupling will be a defining feature of the technology landscape for years to come, even with one of its most prominent contributors -- former U.S. President Donald Trump -- no longer in office.”