With global demand seemingly in free fall, both the US and China see increased foreign direct investment as a possible cushion. But despite the US and China having the world’s largest bilateral trade flows, Foreign Direct Investment flows between the two are surprisingly negligible.
During the so-called US – China Strategic and Economic Dialogue, a meeting of respective honchos from both countries, the most heated discussions involve China complaining about US security restrictions on direct investment and America arguing that China is too fixated on promoting “indigenous innovation.” Differences in culture certainly play a role as well, but mismatched motivations in intentions pose an even greater challenge.
Contrary to popular belief, the US accounts for only a few percent of FDI into China. This is puzzling given the prominent role that such investments played in jumpstarting China’s economy, making it among the top two destinations globally, second only to the US. FDI from European countries also has been much higher than from the US, mirroring their stronger export presence in higher end machinery and consumer products compared with the US whose top two export lines are food grains and recycled waste products, which do not warrant supportive FDI.