Foreign enterprises’ direct investment in China climbed to its lowest level since the early 1990s last year, highlighting the country’s hurdles as Beijing seeks more outside investment to boost its economy.
China’s direct investment obligations in its balance of payments increased by USD 33 billion last year, an 82 per cent decrease from 2022, according to State Administration of Foreign Exchange statistics issued on Sunday. That metric of new foreign investment into the nation, which tracks monetary flows related to foreign-owned firms in China, has fallen to its lowest level since 1993.
The data demonstrates the impact of the Covid lockdowns and slow recovery last year. Investment declined in the third quarter of 2023 for the first time since 1998. Although it recovered slightly and resumed growth in the fourth quarter, the USD 17.5 billion in new money in that time was still one-third smaller than the same period in 2022.
Experts say that SAFE’s statistics, which measures net flows, can reflect trends in foreign firm earnings as well as changes in the scale of their activities in China. According to National Bureau of Statistics statistics, foreign industrial enterprises’ profits in China fell 6.7 per cent last year. According to previous Ministry of Commerce data, fresh foreign direct investment in China declined last year to its lowest level in three years.
According to experts, MOFCOM’s estimates exclude reinvested earnings from existing foreign enterprises and are less volatile than SAFE figures.
The ongoing decline demonstrates how international corporations withdraw funds from the country owing to geopolitical concerns and higher interest rates abroad.
Multinational corporations are more interested in retaining capital offshore rather than in China since advanced nations have raised interest rates while Beijing has slashed them to support the economy. According to a recent poll of Japanese enterprises in China, most of those companies lowered or held steady their investment last year, and the majority do not have an optimistic view for 2024.
The government’s efforts to get international firms to return after Covid are falling short, and more will be required if Beijing is to achieve its objectives.
There are a few bright spots. According to a German Economic Institute analysis based on Bundesbank statistics, German firms’ direct investment in China hit a new high of about USD13 billion last year.
That reflects a willingness to develop in the world’s second largest economy, even as the European Union increases scrutiny of these projects due to security concerns. According to the data, investment in China accounted for 10.3 per cent of Germany’s total direct investment overseas last year, the highest level since 2014.
