Updated August 28, 2019
U.S.-China Investment Ties: Overview and Issues for Congress
Background
Figure 1. Foreign Holdings of U.S. Securities in 2018
Investment plays a large and growing role in U.S.-China
(in bil ions of U.S. dol ars)
commercial ties. For many years, the Chinese government
invested much of its foreign exchange reserves in U.S.
assets, particularly U.S. Treasury securities. These reserves
stemmed from China’s large annual trade surpluses, foreign
direct investment (FDI) inflows, efforts to halt or slow the
appreciation of its currency, and policies that restrict capital
outflows. More recently, however, the Chinese government
has sought to diversify its investments by encouraging its
firms—many of them state-owned enterprises (SOEs)—to
invest overseas, become more globally competitive, and
gain access to raw materials and cutting-edge technology.
As a result, China’s outward FDI stock globally has risen
significantly, from $34.7 billion (0.5% of world total) in

2001 to $1.9 trillion (6.3% of world total) in 2018. (The
Source: CRS with data from the U.S. Department of the Treasury.
United States accounts for $6.5 trillion, or 20.9%, of global
Notes: Long and short-term U.S. securities at the end of June 2018.
outward FDI stock, down from 31.8% in 2001.)
Concerns About Chinese Holdings
While a significant share of Chinese investment in the
Some analysts and Members of Congress have raised
United States is in U.S. public and private securities, U.S.
concerns that China’s large holdings of U.S. securities
capital flowing into China largely has taken the form of
could give it leverage over U.S. foreign and economic
FDI. (This is due, in part, to Chinese restrictions on
policy issues. They argue, for example, that China could
portfolio investment.) Initially, after China began opening
seek (or threaten) to liquidate a large share of its U.S. assets
up its economy in 1979, most U.S. FDI in China was
or significantly cut back its purchases of new securities
channeled to the export-oriented manufacturing sector, so
over a policy dispute. Others contend that these holdings
as to take advantage of China’s ample supply of workers
give China little practical leverage. Attempts to harm the
and their comparatively low wages. As China’s economy
U.S. economy by unloading these holdings would likely
began to grow rapidly, its booming domestic market has
cause comparable harm to the Chinese economy. Such
attracted a growing share of U.S. (and global) FDI.
attempts could also cause the U.S. dollar to depreciate
sharply against global currencies, reducing the value of
China’s Holdings of U.S. Securities
China’s remaining U.S. dollar assets. In 2012, the U.S.
U.S. financial securities consist of securities issued by the
Department of Defense concluded that China’s use of
U.S. government and private sector entities. They include
Treasury securities as a coercive tool is not a credible
Treasury securities, government agency securities,
threat, and even if carried out, the effect would be limited
corporate securities, equities (e.g., stocks), and other debt.
and cause more harm to China than to the United States.
As of June 2018 (the most recent period for which complete
Foreign Direct Investment (FDI)
data are available), China’s investment in U.S. securities
totaled $1.6 trillion, up $66.2 billion (4.3%) from June 2017
In 2018, the United States and China were each other’s
levels, making China the third-largest holder after Japan
largest trading partners. Yet, the level of bilateral FDI has
and the Cayman Islands (Figure 1). China’s share of total
remained relatively low. Amid trade tensions, a U.S. vetting
foreign holdings of U.S. securities stood at 8.3% (down
regime with a newly broadened scope for reviewing certain
from its all-time high share of 15.2% in 2009).
foreign investments for national security implications, and
tighter Chinese regulations on capital outflows, Chinese
U.S. Treasury securities are the largest category of U.S.
FDI in the United States has slowed since 2016.
securities and one of the main vehicles through which the
government finances budget deficits. As of June 2019,
According to the U.S. Bureau of Economic Analysis
approximately three-fourths (or $1.11 trillion) of China’s
(BEA), net U.S. FDI flows to China in 2018 were $7.6
total U.S. public and private holdings are Treasury
billion (down 22.9% from 2017). Net Chinese FDI flows
securities, which are generally considered by investors as
into the United States were negative (-$754 million,
“safe-haven” assets. Chinese ownership of these securities
compared to $25.4 billion in 2016), as outflows exceeded
has decreased in recent years from its peak of $1.31 trillion
inflows (e.g., asset divestitures). Additionally, the stock of
in 2011. Nevertheless, they remain significantly higher than
U.S. FDI in China was $116.5 billion (up 8.3% from 2017),
in 2002, both in dollar terms (up over $1 trillion) and as a
while Chinese FDI in the United States was $60.2 billion
percent of total foreign holdings (from 8.5% to 17.0%). (In
(up 3.7%), on an ultimate beneficiary ownership basis
June 2019, Japan overtook China to become the largest
(Figure 2). (In 2018, China accounted for 1.4% of total FDI
foreign holder of Treasury securities.)
stock in the United States, up from 0.05% in 2002.)
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U.S.-China Investment Ties: Overview and Issues for Congress
Figure 2. Chinese FDI Stock in the United States
countries, ranked China’s FDI regime as the sixth most
(in bil ions of current U.S. dol ars)
restrictive. Recent surveys by U.S. and European business
groups suggest that foreign firms in China may be less
optimistic about the Chinese market than in the past, due in
part to perceived growing protectionism and current U.S.-
China trade tensions. Liberalizing China’s FDI regime, U.S.
officials argue, would boost U.S. business opportunities
in—and U.S. exports to—China.
Table 1. China’s FDI in the U.S. (2000 Q1-2018 Q2)
Industry
Number
Cumulative
of Deals
Value (millions)
Real Estate & Hospitality
228
$40,563
Transport & Infrastructure
101
17,042
ICT
242
16,816
Energy
114
13,401

Entertainment
54
9,520
Source: CRS with data from the U.S. Bureau of Economic Analysis.
Agriculture & Food
38
7,576
BEA also collects financial data of U.S. multinational
Health & Biotech
146
7,450
enterprises (MNEs) investing abroad. Data for 2016 (the
Finance & Business Services
94
7,151
most recent year for which data are available) indicate that
sales by foreign affiliates of U.S. firms in China totaled
Consumer Prod & Services
119
6,718
$463.5 billion (down 4.3% from 2015). China was the
Electronics
71
5,156
third-largest market for U.S.-affiliated firms overseas, after
Other
364
9,098
the United Kingdom ($676.7 billion) and Canada ($604.2
Total
1,571
$140,491
billion). In addition, U.S. affiliates in China employed 2.1
Source: CRS with data from Rhodium Group.
million workers, paid $35.3 billion in employment
Concerns About Chinese FDI in the United States
compensation, and spent $3.5 billion on research and
While some U.S. businesses and governments at various
development (R&D).
levels have been actively seeking Chinese investors,
U.S. Residential Real Estate
Chinese FDI in the United States has come under increasing
In its 2019 survey (April 2018–March 2019), the National
scrutiny by policymakers. Some Members have expressed
Association of Realtors (NAR) found that over the past
concerns over investments by government-backed entities
seven years, Chinese investors have been the largest foreign
that appear to target industries and technologies that the
buyers of U.S. residential real estate. (NAR statistics on
Chinese government has identified as critical to China’s
China include buyers from mainland China, Hong Kong,
future economic development. Concerns over the ability of
and Taiwan.) During 2018-2019, Chinese investors
the Committee on Foreign Investment in the United States
purchased 19,900 properties valued at $13.4 billion. While
(CFIUS) to review adequately the national security aspects
these purchases had risen sharply, from $7 billion in 2011
of FDI in the U.S. economy led to the enactment of the
to $31.7 billion in 2017, their dollar value in 2019 was
Foreign Investment Risk Review Modernization Act
down 55.6% ($17.0 billion) from 2018.
(FIRRMA) in August 2018. The Act seeks to modernize
Alternative Measurements of Bilateral FDI
CFIUS and expand the types of investment subject to
Some analysts contend that BEA’s data and Chinese official
review, including certain non-controlling investments in
government sourced data do not accurately reflect the value
“critical technology.”
of China’s FDI in the United States. Rhodium Group (RG),
Bilateral Investment Treaty (BIT)
a private consulting firm, notes that BEA “counts FDI
Negotiations
coming directly from China and omits flows which are
In 2008, the U.S. and China launched negotiations for a
routed through third countries, a practice used extensively
BIT, an agreement that typically contains provisions to
by Chinese firms due to capital controls and inadequate
provide reciprocal investment protections and encourage
legal and financial infrastructure at home.” RG developed
bilateral commercial ties. In 2013, China agreed to
its own dataset to track investment by Chinese-owned firms
negotiate a “high standard” BIT with the U.S., which would
using commercial databases and news reports. Using its
include opening new sectors to FDI and generally not
tracker, it puts gross Chinese FDI flows to the United States
discriminating against U.S. firms invested in China. The
in 2018 at $5.4 billion and gross U.S. FDI flows to China at
two sides were unable to reach an agreement by the end of
$13.0 billion. In addition, it estimates cumulative Chinese
the Obama Administration, and the Trump Administration
FDI in the United States at $140.5 billion and U.S. FDI in
has not resumed the talks. Many analysts contend that a
China at $269.6 billion (Table 1).
BIT could significantly boost bilateral FDI and trade flows.
Chinese Restrictions on FDI
Although China is one of the world’s top recipients
Note: Sections of this In Focus rely on work originally written by
of FDI,
Wayne M. Morrison, former CRS Specialist.
the Chinese government imposes numerous restrictions on
the level and types of FDI allowed in China. The
Andres B. Schwarzenberg, Analyst in International Trade
Organisation for Economic Co-operation and Development
and Finance
(OECD)’s 2018 FDI Regulatory Restrictiveness Index,
which measures statutory restrictions on FDI in 69
IF11283
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U.S.-China Investment Ties: Overview and Issues for Congress


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