While it’s debatable how the long term effects of Trump’s trade war against China will ultimately shake out for every economic sector, there’s little doubt that transnational investment flow and dealmaking are already taking a hit, according to a recent story from PitchBook.
According to the Rhodium Group, an independent research provider cited by PitchBook, in the first half of 2018, Chinese foreign direct investment into the United States totaled only $1.8 billion, down 90% from the comparable period last year and the lowest level in seven years. In fact, nearly $10 billion was pulled out of the United States by Chinese investors in the first five months of 2018.
Here are a few of the top impacts PitchBook’s news team sees on the VC, PE and M&A spaces.
While U.S. investment into Chinese tech companies has taken off in the last few years, so has Chinese investment in Silicon Valley startups. Startups will likely see that money spigot turned off because of increased regulatory red tape.
American interest in private equity has been on a roll in Asia during the past few years, especially in China. But that seems to be drying up. Money raised by China-focused and headquartered private equity firms fell approximately 50% during the first half of 2018 when compared with the same period in 2017.
For existing PE portfolio companies, especially those in China, valuations are likely to be negatively impacted by higher tariffs, since China’s economy has a higher sensitivity to export growth.
Mergers & Acquisitions
While the Chinese government has long had a reputation for scuttling high-profile deals with the stroke of a pen, the situation is only likely to get worse – on both sides. First it was China scuttling the Qualcomm deal with NXP Semiconductors. Then the United States cited security risks in blocking telecom providers ZTE and China Mobile. Then China reneged on a separate innovation hub from Facebook the day after it was announced. There’s no doubt the business climate is deteriorating, and fast.
Markets, like information, want to be free. The question for Trump is how to make the trade balance between our countries more equitable without enslaving both of our markets.