Chinese Firms in the US–China Trade War: Decoupling through Reshoring?

Abstract This paper leverages firm-level data to examine the impact of the US–China trade war on the greenfield investment of Chinese investors. Our research yields a few interesting findings. Importantly, our longitudinal analysis of Chinese greenfield investment projects yields evidence that the tariffs have dampened overall Chinese investment. Further analyses for different world regions indicate that while the tariffs have generally had a chilling effect on Chinese investment in most world regions, they may have prompted Chinese investors to engage in “tariff-jumping” in the United States. Our analysis further shows that the trade war may have incentivized Chinese investors to increasingly invest in countries with good political ties with Beijing, presumably as a buffer against potential downturns in bilateral relations. It may also have contributed, at least in part, to a reduced willingness by Chinese state-owned enterprises to engage in overseas investment. However, we found no evidence that the tariffs have led to a perceptible shift in China's investment flows toward BRI countries. Overall, these findings help to illuminate the extent to which policies of “decoupling” may have induced shifts in Chinese investors’ investment patterns, at least in the short-run.