According to Lanya
Investing.com – China’s foreign direct investment (FDI) indicator turned negative for the first time since 1998, indicating the country’s failure to stem capital flows overseas.
Data released late last week by China’s State Administration of Foreign Exchange (SAFE) showed financial debt generated by foreign direct investment (DIL) – a measure of foreign capital flowing into China – in the third quarter was negative $11.8 billion. In the same period last year, China’s DIL was US$14.1 billion.
This is the first time the indicator has turned negative in 25 years since the State Administration of Foreign Exchange began compiling the data in 1998, and the data may be related to the impact of Western countries’ “de-risking” of China amid escalating geopolitical tensions.
This suggests that foreign companies may be pulling money out of the country rather than reinvesting in their operations. Financial liabilities arising from foreign direct investment include profits belonging to foreign companies that have not yet been repatriated or distributed to shareholders, as well as foreign investments in financial institutions.
The British Financial Times calculated based on data from the Chinese Ministry of Commerce that China’s FDI inflows in September 2023 were 72.8 billion yuan (US$10 billion), a year-on-year decrease of 34%. This is the largest drop since data began being released on a monthly basis in 2014. From January to September, China’s FDI dropped by 8.4% cumulatively.
The decline in foreign direct investment is part of China’s disappointing economic indicators since Covid-19 restrictions were lifted early this year. In January 2023, foreign direct investment flowing into China surged by 15% year-on-year. However, this fund flow has recorded double-digit declines every month since May 2023.
Vanguard Group, the largest fund management company in the United States and the second largest in the world, is taking the final steps to exit China. Vanguard told CNN it plans to close its Shanghai office after December 2023. The company said it sold a stake in the joint venture to local partner Ant Group last month as part of the exit.
Amid growing economic challenges, Beijing is seeking to first reverse capital outflows. But these efforts appear to be failing to reassure investors.
Late last month, China’s legislature approved the issuance of 1 trillion yuan ($137 billion) of government bonds to support the economy. The bonds will be used primarily to finance infrastructure projects.
The sovereign wealth fund also bought shares last month to boost the country’s flagging stock market, which has had one of the world’s worst performances this year.
In September, Beijing also eased capital controls on the country’s two largest cities, Beijing and Shanghai, allowing foreigners to move money freely in and out of China.
In September, the People’s Bank of China also met with a number of leading foreign companies, including JPMorgan Chase (NYSE: ), Tesla (NASDAQ: ) and HSBC (NYSE: ), pledging to further open up the financial sector and “optimize “Financial Industry. The operating environment of foreign-invested enterprises.
However, analysts say global investors remain wary of China’s growing scrutiny of Western companies and structural deterioration.
A September survey by the American Chamber of Commerce in Shanghai found that only 52% of respondents were optimistic about the five-year business outlook, the lowest level since the survey began in 1999. This is down from 55% in 2022 and 78% in 2021.