WASHINGTON — While the policy environment for Chinese outbound foreign direct investment (FDI) has changed and mega-deals are becoming more difficult to forge, Chinese overseas investments are not going away, a US think tank said in a recent report.

"The current policy environment may tie the hands of Chinese mega dealmakers, such as Anbang, HNA, and Wanda. But that could simply shift the focus of Chinese FDI to another class of investors, as private equity and venture capital (PE/VC) firms can now step in and potentially define Chinese FDI in the coming years," said a report from Macro Polo, an in-house think tank of the Paulson Institute at the University of Chicago, aiming to analyze China's economy.

China became the second-largest source of outward FDI for the first time in 2016, when Chinese companies spent $183 billion in cross-border mergers and acquisitions, according to the World Investment Report 2017 released by the United States Conference on Trade and Development.

China's outbound FDI, however, dropped sharply in the first two months of 2017 as Chinese regulators set stricter rules to crack down on irrational or illegal outbound investment activities amid mounting pressure of capital outflow.

Although outbound FDI regained some momentum in the second quarter, the total amount in the first half of 2017 fell by 20 percent compared to the same period in 2016, according to Rhodium Group, a business management consultancy.

When big dealmakers are affected by tightened regulation of cross-border capital flows, "PE and VC firms will be the ones that remain with the financing muscle to continue investing," said the report.

The Chinese PE/VC industry has risen as a major global financier, raising about $72.52 billion in 2016.

PE and VC firms are more resilient because their funding sources are different from those mega-dealmakers. According to data compiled by Macro Polo, half of PE and VC firms' cumulative funding is denominated in foreign currencies.

Besides, as Chinese outbound FDI shifts toward technology-intensive areas such as aviation and artificial intelligence, "acquiring specialized industry knowledge will be a crucial advantage for these PE/VC investors, particularly in the fast-evolving tech sector," said the report.