FDI into China slumps to worst in 30 yrs

FDI into China slumps to worst in 30 yrs

Foreign businesses’ direct investment into China last year increased by the lowest amount since the early 1990s, underscoring challenges for the nation as Beijing seeks more overseas investment to help its economy.

China’s direct investment liabilities in its balance of payments rose by $33 billion last year, 82% down on 2022, according to data from the State Administration of Foreign Exchange released Sunday. That measure of new foreign investment into the country — which records monetary flows connected to foreign-owned entities in China — slumped to the lowest level since 1993.

The data shows the effect of the Covid lockdowns and weak recovery last year. The investment fell in the third quarter of 2023 for the first time since 1998. Although it recovered a little and returned to growth in the final quarter, the $17.5 billion in new money in that period was still a third lower than the same period of 2022.

SAFE’s data, which gauges net flows, can reflect trends in foreign company profits, as well as changes in the size of their operations in China, according to economists. Profits of foreign industrial firms in China dropped 6.7% last year from the prior year, according to National Bureau of Statistics data.

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Earlier figures from the Ministry of Commerce showed new foreign direct investment into China fell last year to the lowest level in three years. MOFCOM’s figures don’t include reinvested earnings of existing foreign firms and are less volatile than the SAFE figures, economists have said.

The continuing weakness highlights how foreign companies are pulling money out of the country due to geopolitical tensions and higher interest rates elsewhere.

There’s rising attractiveness to multinationals of keeping cash overseas rather than in China, because advanced economies have been raising interest rates, while Beijing has been cutting them to stimulate the economy. A recent survey of Japanese firms in China showed most of those companies cut investment or kept it flat last year, and a majority don’t have a positive outlook for 2024.

The government’s efforts to get overseas companies to return after Covid are falling short, and more will be needed if Beijing is to succeed in its aims.

There are some bright spots. Direct investment into China by German companies reached a record of nearly €12 billion ($13 billion) last year, according to a German Economic Institute report based on data from the Bundesbank.

That demonstrates an eagerness to expand in the world’s No. 2 economy even while the European Union steps up scrutiny of these investments because of security concerns. Investment in China as a share of Germany’s total direct investment abroad expanded to 10.3% last year — the highest since 2014, the report showed.

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