Chinese Investment in U.S. Tech Sector Expected To Continue

THE FLATIRON DIFFERENCE

Last year, in-bound Chinese investment in the U.S reached a new high of $45.6 billion, triple the amount for 2015, according to the Rhodium Group. The increase is the result of the convergence of several factors, e.g. the slowing down of the Chinese economy, the depreciation of the RMB and more attractive P/E ratio of U.S. companies. However, the Chinese government, facing increasing pressure to stem capital outflows and falling foreign currency reserves, recently signaled that it intends to re-calibrate outbound investment by discouraging what it calls “irrational” investment in old economy sectors (real estate, hospitality and entertainment sectors) and encouraging investment in sectors that will upgrade the Chinese economy (such as cleantech, artificial intelligence, information technology and healthcare IT). The Chinese government will issue definitive guidance in the near future via an outbound investment industry catalogue.

The Chinese government has clearly stated its intention to dominate industries of the future like renewable energy, big data and self-driving cars. To that end, an increasing share of new in-bound investment from Chinese private and government backed investors is being directed into U.S. based technology start-ups.According to CBI Insights data, China's four largest internet companies, Baidu, Alibab, Tencent (the BAT) and e-commerce company JD.com, have invested $5.6 billion in the U.S. tech sector in the last two years.

Following this trend, a new generation of funds backed by Chinese local and central governments is being formed specifically to invest in U.S. technologies.Because of the central government’s continued emphasis on acquiring expertise and know-how in the new economy, and of freeing itself from dependence on foreign companies, our takeaway is that Chinese investment in US technology will continue to grow, especially in strategic industries like cleantech and artificial intelligence, despite the tightening of the overall regulatory climate on outbound investment by the central government.

AUTHOR

Sara Shen