By Gunnar Schifley, Staff Writer
There has been increasing concern in multiple countries over rising foreign investment, specifically from China. Concerns of national security and economic leverage are becoming more important to world leaders and investors. The way governments react to this concern will have a number of effects on investments, including decreased profits due to regulatory costs and forced sales in an ownership-limit scenario that removes value from the companies and share value.
A recent event that brought this issue to light was the blocking of Broadcom’s potential acquisition of Qualcomm. President Donald Trump decided to block the acquisition after talking to the Foreign Investments Committee. The change of control in the semiconductor industry would have caused the United States to lose leading businesses in an industry that is extremely important to communications in the modern age. The concern surrounding this potential loss of market share in an important industry, such as semiconductors to China, falls in line with a number of other concerns the U.S. has expressed recently.
President Trump has implemented tariffs on steel and aluminum, citing national security concerns over the business practices of Chinese companies in these industries, as well as protecting the domestic producers. The U.S. has also left the Trans-Pacific Partnership, which lessened its influence in the Asian region, compared to China, causing further concern over the economic power of these two nations. The U.S. is not the only nation with concerns about Chinese investment and potential national security threats, though.
A report by the ETNC discussed the rapidly increasing investment in European nations by Chinese investors over the last eight years. The report then moves on to talk about the growing concern of economic freedom in China.
In China, we have seen expanding powers of the president and the communist party, which holds power now, as well as the consolidation of powers into a smaller group of party members. This brings up concerns of governmental interference in the Chinese economy that could compromise the fairness of its markets. If the Chinese government is gaining increasing power in the economy of its country that jeopardizes fairness of the market, its ability to invest in foreign countries can give them increasing political power on a global scale. This is concerning to many of the nations where Chinese investment is increasing.
This is also concerning from the viewpoint of investors. There are already indications of a potential trade conflict in the near future, which would hurt market values domestically and internationally. Additionally, potential regulations implemented in multiple nations against Chinese investors could cost businesses money, damage their ability to gain capital if ownership changes are forced and destroy investor confidence in some businesses. While sweeping regulation isn’t expected, small reform can still have an immediate impact on valuations and expose investors to risk.
What will unfold next is hard to say, and there have been many unprecedented actions by the Trump administration, making speculation even more difficult. Investors could benefit from taking some time to look at their exposure to this issue and determining how much risk they’d like to take.
