Data from Rhodium Group, a US economic research firm, show Chinese foreign direct investment (FDI) in the United States totaled just $1.8 billion in the first five months of 2018—a 90 percent decline from a year ago and the lowest level in seven years. The number of transactions also fell, tumbling from a biannual average of 84 transactions since 2014 to 39 transactions in the first five months of 2018.

According to Rhodium, after reaching a record high of $46 billion in 2016, Chinese FDI in the United States fell to $29 billion in 2017 in part due to Beijing’s intensified scrutiny of outbound flows and tougher US regulatory reviews of inbound Chinese acquisitions through the Committee on Foreign Investment in the United States (CFIUS), the primary government body responsible for reviewing foreign acquisitions of US companies for national security risks.

However, according to Joy Dantong Ma, a researcher at MacroPolo, an initiative of the Paulson Institute at the University of Chicago, the sharp decline in US-bound Chinese investment was not principally caused by a deteriorating political climate in the United States for Chinese investors; rather, the FDI spike in 2016 was an outlier, and 2017 and 2018 data show a “reversion to the mean … after a highly abnormal year.” The 2016 boom in Chinese FDI was driven by just four Chinese firms seeking to diversify their holdings. As Beijing moves to reduce the leverage of its heavily indebted private conglomerates, many Chinese companies are now being pushed to sell their overseas assets to pay off loans. As a result, Chinese companies are divesting their assets in the United States at an unparalleled pace: in the first five months of 2018, Chinese investors sold $9.6 billion worth of US assets, with another $4 billion of sales pending, making net FDI inflows to the United States negative by some $7.8 billion.

Rhodium data show the sectoral composition of Chinese investment has also shifted dramatically in the first five months of 2018. Notably, the health and biotech sector became the top destination for Chinese FDI in the United States for the first time, led by Chinese medical company Shandong Weigao’s $850 million acquisition of Argon Medical Devices. Real estate and hospitality remained the second-largest recipient of Chinese FDI despite Chinese capital controls, driven by smaller deals in commercial real estate. 60 Entertainment came in third, driven by investments from Chinese internet and gaming companies listed overseas, like Tencent and NetEase.

Forthcoming US policy changes on Chinese investment are likely to further dampen Chinese investment in the United States. On June 27, the White House released a statement from President Trump announcing his support for bipartisan legislation currently under consideration in Congress to broaden CFIUS’s authority.

“This legislation, the Foreign Investment Risk Review Modernization Act (FIRRMA), will enhance our ability to protect the United States from new and evolving threats posed by foreign investment while also sustaining the strong, open investment environment to which our country is committed,” said President Donald Trump in a statement. Both chambers of Congress recently passed different versions of FIRRMA, which means the House and the Senate will need to reconcile their bills before President Trump can sign the legislation into law. Both versions would broaden the scope of investments subject to CFIUS review to include nonpassive investments in “critical technology” or “critical infrastructure” companies. “Should Congress fail to pass strong FIRMMA legislation that better protects the crown jewels of American technology and intellectual property from transfers and acquisitions that threaten our national security—and future economic prosperity—I will direct my administration to deploy new tools, developed under existing authorities, that will do so globally,” Trump said.

Meanwhile, the Chinese government is scrapping limits on foreign ownership in select industries to stimulate inflows of investment. On June 28, China’s National Development and Reform Commission and Ministry of Commerce jointly issued a new “negative list” lifting restrictions in 22 industries, including airplane design and manufacturing, agriculture, automotive, banking, railway construction, and shipping. The new list, slated to go into effect July 28, brings the number of restricted sectors to 48, down from 63 in 2017 and 120 in 2011. Many of the changes—such as loosened restrictions on foreign investment in the financial services and automotive sectors—were previously announced. Further, foreign analysts note that openings in a number of sectors (e.g., power grids and rail construction) are unlikely to be meaningful for foreign companies as they are dominated by Chinese state-owned enterprises.