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Economy

Chinese investment in Western countries drops on tech leak fears

Greater scrutiny squeezes cash flow to Europe as well as Belt and Road nations

A decoration symbolizing a golden bridge on the Silk Road stands outside the site of the Belt and Road Forum in Beijing in April. China invested 11% less money into Belt and Road participants in 2018.   © Reuters

BEIJING -- Chinese investment in advanced economies is plummeting, as European countries like Germany and France follow U.S. footsteps in freezing out Chinese players over security concerns.

Beijing is also hitting the brakes on its Belt and Road infrastructure-building initiative, which has come under heavy criticism as a "debt trap," as the country reevaluates its investment strategy in the trade war era.

Overall, foreign direct investment by China fell 10% in 2018 to $143 billion, the lowest figure since 2014. The figure for the financial sector jumped 16% to $21.7 billion, while the nonfinancial sector suffered a 13% decline to $121.3 billion.

By target region, Chinese investment into Europe plunged 64% to $6.5 billion, with outflows to Germany and the U.K. falling by half. China also recouped more cash from France than it invested last year.

Part of the decrease was a side effect of ChemChina's $43 billion takeover of Swiss pesticide producer Syngenta in 2017. But much of it came from increased scrutiny over acquisition attempts by Chinese companies, following U.S. moves to prevent them from acquiring sensitive technology. Chinese investment into the U.S. dropped 62% in 2017.

Last year, Germany blocked a Chinese company from buying a precision machinery maker. Similarly, France scrapped additional sales of government shares in an airport, which counted a Chinese company as its top shareholder.

Chinese investment in the Group of Seven nations, which also include Japan and the U.S., fell for the second straight year in 2018 to $12.2 billion.

Belt and Road-related investments are shrinking as well, with outflows to the 64 countries along the route diving for the first time in two years by 11% to $17.8 billion. Those countries now account for a smaller share of China's investments as well.

Beijing is believed to have scaled back its Belt and Road enterprise amid criticism that construction projects were burying target nations in debt and forcing them to hand over control of key infrastructure to China.

Chinese President Xi Jinping had stressed the importance of financial sustainability at a speech at the Belt and Road Forum in April.

China's investment into eight countries deemed at risk of falling into the debt trap by a U.S. think tank -- including Pakistan, Tajikistan and the Maldives -- has slumped 55% to $1 billion. Debt collection outpaced new investments in Mongolia, Pakistan, the Maldives and Djibouti.

But U.S. tariffs, combined with rising wages in China, have pushed more companies to set up manufacturing bases abroad. Investment in Vietnam jumped 51% to $1.1 billion in 2018. Bangladesh saw a 450% surge to $500 million, and Mexico a 120% jump to $300 million.

Investment into countries like South Korea and Israel, which are less concerned about technology transfers than Western countries, have risen significantly as well.

Meanwhile, investment in African nations grew 31% to $5.3 billion. China sees the region not just as a source for minerals and other resources, but as a potential market. Outflows to the Democratic Republic of the Congo, Zambia, Mozambique and South Africa have all expanded significantly.

Chinese foreign investment hit a record high of $196.1 billion in 2016, but has since been descending amid greater restrictions on investment in property and entertainment businesses. Mergers and acquisitions by Chinese companies have also dropped 38% to $74.2 billion.

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