Fed staff note finds US firms pulling back from China on every measure
Serguey Asael Shinder2 min readA FEDS Note published by the Federal Reserve Board on 25 September sets out to measure how far US companies have actually withdrawn from investing in China. Its author, Board economist Cody Kallen, argues that official bilateral statistics understate the true exposure, because much US investment reaches China through subsidiaries in Hong Kong and other investment hubs. To look through that routing, the note combines Bureau of Economic Analysis data with project-level, deal-level and subsidiary-level sources.
Every measure points the same way. The number of US greenfield projects announced in China was around 300 a year between 2003 and 2013, declined in the second half of the 2010s, then dropped sharply in 2020 and has not recovered, across high tech, advanced manufacturing, other manufacturing and other industries alike. US acquisitions of Chinese firms, counting both direct deals and "hidden" ones made by non-US buyers with an American ultimate parent, fell notably in 2022 and stayed low; deal values followed in 2024, reflecting the lag between announcement and completion. The note finds the fall is not explained by the global M&A cycle, because it shows up relative to other foreign buyers of Chinese firms as well.
Existing operations are being run down too. Since 2015, US parents have taken a rising share of their Chinese earnings as dividends rather than reinvesting them, with payouts overtaking reinvestment in recent years; outside China and investment hubs, reinvestment rates have returned to their norm near 50%. Capital spending by Chinese subsidiaries of US multinationals has fallen relative to their existing plant and equipment, and a growing share report selling fixed assets.
What it means
For the dollar side of the ledger, this is the capital account's version of trade decoupling. The official bilateral figures showed only a modest decline; the firm-level evidence shows a broad and deliberate reduction, reversing decades of integration.
The note is careful about what it does not claim. It documents the timing - after the 2018 tariffs, the pandemic and Russia's invasion of Ukraine - but does not separate the drivers between trade tensions, geopolitics and investment screening, and it leaves open whether the retreat continues. As with all FEDS Notes, the views are the author's, not the Board's.