China Records Steep Drop in Foreign Investment, Hitting a Four-Year Low

China's Foreign Direct Investment Hits a 4-Year Low, Reflecting Global Economic Challenges

Dec 21, 2023 - 05:09
Dec 21, 2023 - 05:10
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China Records Steep Drop in Foreign Investment, Hitting a Four-Year Low
China Records Steep Drop in Foreign Investment, Hitting a Four-Year Low

China experienced a substantial drop in foreign investment in November, reaching its lowest point in nearly four years. The actual foreign capital utilized by the country amounted to 53.3 billion yuan ($7.5 billion) last month, marking a notable 19.5% decrease compared to the same period last year. These findings, based on calculations by Bloomberg using data from the Ministry of Commerce, highlight the impact of geopolitical tensions and a slowing economy on foreign companies, prompting them to scale back their expansion plans.

The November figures paint a challenging picture, reminiscent of February 2020 when the initial wave of the Covid-19 pandemic struck. Over the first 11 months of the year, overall investment plummeted by 10% year-on-year to 1.04 trillion yuan, as reported by the Ministry.

Despite China's efforts to reopen its borders after implementing stringent measures to combat Covid-19 for three years, signs of weakened sentiment among foreign investors have persisted throughout this year. While some foreign business leaders have returned to the country, there is a noticeable reluctance among firms to significantly increase their spending.

Economists from Bank of America, led by Ouyang Miao, emphasized in a pre-data release report that the unfavorable global macro backdrop, characterized by higher dollar interest rates, slowing growth momentum, and heightened geopolitical uncertainty, is unfavorable for cross-border investment, particularly in emerging markets.

It's worth noting that the data released on Thursday presents a somewhat optimistic picture compared to other datasets indicating foreign companies withdrawing funds. The discrepancy is partially attributed to differences in how various datasets account for the reinvestment of profits made in China by companies.

Data from the foreign exchange regulator revealed that foreign investment turned negative in the third quarter, a situation not seen since 1998. This shift likely reflects a reduced willingness among firms to reinvest profits in China, influenced in part by higher returns abroad due to the yield gap with the US.

Despite these challenges, there are faint signals suggesting a potential recovery in foreign interest in the Chinese market. In October, global funds significantly increased their holdings of yuan-denominated bonds, the most substantial uptick in four months. This positive movement is attributed to a more stable currency, which has positively impacted investor sentiment.

Also Read: China's Stock Market Faces Setback in November Amid Economic Concerns

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