Market Insight - China Investment Flows Reversing?

By Daryl Liew, Senior Portfolio Manager, Singapore

Sometimes you can get too much of a good thing. Chinese money for instance, both corporate and individual, was once welcomed with open arms as the inflows were expected to boost economic activity. Recent developments, however, suggest that the open arms increasingly have become crossed on a growing backlash against China investments.

Part of the fear, which is one of the issues behind the ongoing US-China “Trade” dispute, appears to be strategic competition – the concern that China is acquiring foreign intellectual property, which will help Chinese companies leapfrog their Western competitors and eventually put them out of business. These concerns have led the US to expand the oversight of the Committee on Foreign Investment in the US (CFIUS), to include joint venture agreements and even minority stakes. CFIUS previously could only block foreign transactions acquiring a majority stake in US-entities and deemed a threat to national security. The US also passed the Export Control Reform Act (ECRA) in August 2018, which not only potentially restricts the export of goods, but also covers technology licensing agreements and even potentially employment contracts. A review of existing licensing agreements is currently ongoing and due to be completed by May, but could result in more stringent rules on Chinese firms licensing US intellectual property. Across the Atlantic, Europe has also taken a similar stance with the launch of a new EU framework for screening foreign direct investments, an initiative that was drawn up in response to the growing threat of Chinese firms seeking to acquire European technology.

Individual Chinese private wealth is also facing a similar backlash, as Chinese investors are blamed for pushing up property prices in places like Vancouver and Auckland. Last August, New Zealand Prime Minister Jacinda Ardern followed through on her campaign promise to stem the rise in housing prices by banning non-resident foreigners from buying homes. Chinese private investors are arguably easy targets to point the finger at even though the statistics do not appear to show that foreign investors make up a large proportion of total residential sales in New Zealand. 

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