U.S.-China tensions knock 96% off of bilateral tech investment

TAIPEI -- Political tensions have decimated tech-sector investment between the U.S. and China as the world's two biggest economies attempt to decouple their supply chains, according to a recent report.Between 2016 and 2020, overall direct investment between the two countries fell 75% from $62 billion to $16 billion, with the tech sector alone plunging 96% over the period, according to Bain and Co.'s latest annual technology report released on Monday.Investments from China to the U.S. fell much more steeply than those in the opposite direction due to Washington's crackdown on Chinese companies creating geopolitical uncertainties for businesses, Anne Hoeker, the partner with Bain & Co. who led the research, told Nikkei Asia."The business environment for Chinese companies in the U.S. was probably a little bit less secure than it was before, and they [China] just turned their focus to investments in Europe and Africa," said Hoeker, who specializes in technology and semiconductor practices.Chinese overall direct investment to the U.S. dwindled to just $7.2 billion in 2020 from $48.5 billion in 2016. U.S. investment in China dropped 35% to $8.69 billion over the same period. The decline was steepest in technology, real estate and health care-related fields, the data from the U.S.-China Investment Hub showed.Several major economies are investing more than ever in their own technology and supply chain independence, Hoeker said, which was not a key issue just a few years ago, when the main theme for U.S. business leaders was how to access the Chinese market.Hoeker said the supply chain disruptions brought by COVID-19 and the unprecedented semiconductor shortage have added fuel to this trend, making tech decoupling an issue for economies beyond the U.S. and China.The Bain report comes a little over a week after U.S. President Joe Biden's second call to Chinese President Xi Jinping, a 90-minute conversation on Sept. 9. Despite the talks, tensions between the two countries have shown few signs of improving since Biden took office in January.Trade practices and technological competition remain two key points of contention between the two global powers.The U.S. blacklisted 168 Chinese companies, excluding Huawei and its dozens of affiliates, between 2018 and April this year, according to an earlier Nikkei Asia analysis, most of them technology related.Washington's crackdown on Chinese tech champion Huawei Technologies, meanwhile, has prompted a nationwide effort in China to build a complete domestic semiconductor supply chain, from chip designs and materials to production equipment to chip manufacturing.The current global chip shortage has further spurred major economies to build up their own supply chains and bring more vital semiconductor production onshore for both economic and national security reasons.New regional supply chains began cropping up outside of China less than 1,000 days after Washington imposed its first wave of punitive tariffs on Chinese imports in 2018, as companies began to view decoupling as an irreversible trend. American tech giants like Apple, Google, Amazon, and Microsoft have all asked suppliers to build capacity outside of China due to the geopolitical uncertainty.Bain's Hoeker said the decoupling trend is here to stay, but added that it will be a very long process and it is unlikely that supply chains will be fully separated.The report said there are "massive" uncertainties ahead and business leaders must be able to navigate geopolitical risks, plan cautiously and invest more resources into boosting government relations and global trade teams.Companies will also have to understand the particular "pinch points" of their supply chains -- where they are reliant on a country or a single source of supplier -- and try to qualify new suppliers to add resiliency and regularly review their long-term plans, Hoeker added.

U.S.-China tensions knock 96% off of bilateral tech investment

TAIPEI -- Political tensions have decimated tech-sector investment between the U.S. and China as the world's two biggest economies attempt to decouple their supply chains, according to a recent report.

Between 2016 and 2020, overall direct investment between the two countries fell 75% from $62 billion to $16 billion, with the tech sector alone plunging 96% over the period, according to Bain and Co.'s latest annual technology report released on Monday.

Investments from China to the U.S. fell much more steeply than those in the opposite direction due to Washington's crackdown on Chinese companies creating geopolitical uncertainties for businesses, Anne Hoeker, the partner with Bain & Co. who led the research, told Nikkei Asia.

"The business environment for Chinese companies in the U.S. was probably a little bit less secure than it was before, and they [China] just turned their focus to investments in Europe and Africa," said Hoeker, who specializes in technology and semiconductor practices.

Chinese overall direct investment to the U.S. dwindled to just $7.2 billion in 2020 from $48.5 billion in 2016. U.S. investment in China dropped 35% to $8.69 billion over the same period. The decline was steepest in technology, real estate and health care-related fields, the data from the U.S.-China Investment Hub showed.

Several major economies are investing more than ever in their own technology and supply chain independence, Hoeker said, which was not a key issue just a few years ago, when the main theme for U.S. business leaders was how to access the Chinese market.

Hoeker said the supply chain disruptions brought by COVID-19 and the unprecedented semiconductor shortage have added fuel to this trend, making tech decoupling an issue for economies beyond the U.S. and China.

The Bain report comes a little over a week after U.S. President Joe Biden's second call to Chinese President Xi Jinping, a 90-minute conversation on Sept. 9. Despite the talks, tensions between the two countries have shown few signs of improving since Biden took office in January.

Trade practices and technological competition remain two key points of contention between the two global powers.

The U.S. blacklisted 168 Chinese companies, excluding Huawei and its dozens of affiliates, between 2018 and April this year, according to an earlier Nikkei Asia analysis, most of them technology related.

Washington's crackdown on Chinese tech champion Huawei Technologies, meanwhile, has prompted a nationwide effort in China to build a complete domestic semiconductor supply chain, from chip designs and materials to production equipment to chip manufacturing.

The current global chip shortage has further spurred major economies to build up their own supply chains and bring more vital semiconductor production onshore for both economic and national security reasons.

New regional supply chains began cropping up outside of China less than 1,000 days after Washington imposed its first wave of punitive tariffs on Chinese imports in 2018, as companies began to view decoupling as an irreversible trend. American tech giants like Apple, Google, Amazon, and Microsoft have all asked suppliers to build capacity outside of China due to the geopolitical uncertainty.

Bain's Hoeker said the decoupling trend is here to stay, but added that it will be a very long process and it is unlikely that supply chains will be fully separated.

The report said there are "massive" uncertainties ahead and business leaders must be able to navigate geopolitical risks, plan cautiously and invest more resources into boosting government relations and global trade teams.

Companies will also have to understand the particular "pinch points" of their supply chains -- where they are reliant on a country or a single source of supplier -- and try to qualify new suppliers to add resiliency and regularly review their long-term plans, Hoeker added.