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U.S.-China investments dwarf official figures: study

Published Jan 26, 2021 12:08AM ET
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2/2 © Reuters. FILE PHOTO: HKEX sign is seen at the 2020 China International Fair for Trade in Services in Beijing 2/2

By Ross Kerber

BOSTON (Reuters) - Total investments between the United States and China are much bigger than official figures reflect, a report released on Tuesday found, underscoring the challenge facing U.S. President Joe Biden's foreign policy team at a cold point in relations between the two countries.

"All sorts of people stand to lose a lot" should leaders continue to split apart the world's two largest economies, said Adam Lysenko, associate director of research firm Rhodium Group.

It wrote the report released by the National Committee on U.S-China Relations, an influential Washington group of business and diplomatic leaders. Ties between the two countries are under strain on a host of issues, including human rights and trade rules.

The report estimates U.S. investors held $1.2 trillion in equity and debt securities issued by Chinese entities at the end of 2020, five times the levels shown in official data from the U.S. Treasury Department. Most of the difference was due to Chinese firms "using complex legal structures to issue shares out of tax havens that trade on U.S. exchanges," according to the report.

Chinese holdings of U.S. securities, meanwhile, were as much as $2.1 trillion at the same point, 36% more than official figures suggest. Most of the difference was due to "equity investments misclassified in official sources due to investor efforts to circumvent Beijing’s capital controls or the use of Hong Kong as an investment intermediary," according to the report.

Financial integration between the two economies, however, is also low, due to capital controls, Lysenko said. Were policy loosened, the two countries' combined portfolio investments would total more than $9 trillion, compared with about $3 trillion currently, he said.

In office less than a week, Biden's foreign-policy and trade teams have inherited a series of hardline policies put in place by the administration of former U.S. President Donald Trump.

An executive order from November requires U.S. investors to divest from 44 companies allegedly linked to China's military, but conflicting statements from agencies handling its rollout spurred confusion among shareholders.

Few investors expect the new administration to roll back any rules quickly, and administration officials have given little official guidance

U.S.-China investments dwarf official figures: study

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