China’s Outbound Investment Falls for First Time on Record

* Direct investment in the U.S. dropped 62.1% in 2017 to $6.43 billion, as Trump administration tightened scrutiny of Chinese investments

* Chinese direct investment in Europe surged 72.7% to a record $18.46 billion in 2017.

China posted its first annual decline in outbound investment on record in 2017 amid domestic scrutiny of corporate debt and rising foreign hurdles.

China’s direct investments abroad last year dropped 19.3% from a year earlier to $158.29 billion, the first annual decline since data was first released in 2003, according to China's Ministry of Commerce, National Bureau of Statistics and State Administration of Foreign Exchange in a report issued Friday.

China’s direct investment in the U.S. dropped 62.1% in 2017 to $6.43 billion, according to the report.

The declines came as Chinese regulators tightened scrutiny of companies’ overseas investments since late 2016 amid concerns over excessive capital outflow and a buildup of corporate debt. The government crackdown put a brake on years of global spending sprees led by private conglomerates including HNA Group, Dalian Wanda Group and Anbang Insurance.

About 80% of China’s outbound direct investment last year targeted sectors including commercial services, manufacturing, consumer goods and finance, according to the report. Investment in overseas real estate sector declined 55% to $6.8 billion.

Zhang Xingfu, a senior official of the Commerce Ministry, said at a press briefing Friday that regulators tightened oversight of cross-border investments as some companies ran into problems after reckless spending while others invested heavily in offshore property assets that led to surging capital outflow.

The outbound investment decline also reflects growing hurdles erected by foreign regulators, especially the U.S. as the trade war between the two largest economies deepens.

The Trump administration tightened scrutiny of Chinese investments, especially in technology sectors, through the Committee on Foreign Investment in the United States, a multi-agency government panel.

That has led to a series of failed deals proposed by Chinese investors since last year. They include a proposed takeover of U.S. microchip testing specialist Xcerra Corp. and the sale of U.S. high-tech chipmaker Lattice Semiconductor Corp. to a group of Chinese buyers led by private equity firm Canyon Bridge Capital Partners.

As deals in the U.S. slowed, Europe became the primary destination for Chinese investment in terms of value. In 2017, Chinese direct investment in Europe surged 72.7% to a record $18.46 billion. Asia remains the top destination of Chinese investment despite a 15.5% declined last year.

But European regulators have also stepped up scrutiny of Chinese acquisitions in sensitive sectors. In late July, the German government blocked a Chinese company’s acquisition of an advanced German machinery manufacturer citing concerns about surrendering key technology, the first deal Berlin has effectively vetoed.

Zhang said the rising regulatory hurdles abroad have affected some Chinese companies’ investment plans and sparked concerns among global investors. The Commerce Ministry will closely monitor the development and assess the impacts on Chinese investments, Zhang said.

Contact reporter Han Wei (weihan@caixin.com)