Foreign direct investment in China is at its worst in 30 years

Foreign companies’ direct investment in China rose last year to its lowest level since the early 1990s, highlighting challenges for the country as Beijing seeks more overseas investment to support the economy.

According to data from the State Administration of Foreign Exchange (SAFE) released yesterday, China’s direct investment debt in the balance of payments increased by $33 billion last year, down 82% compared to 2022. A measure of new foreign investment into the country, which tracks the flow of funds related to foreign companies in China, has fallen to its lowest level since 1993.

The data shows the impact of COVID-19 lockdowns and the slow recovery last year. Investments in the third quarter of last year fell for the first time since his 1998. There was a slight recovery in the final quarter, with a return to growth, but the $17.5 billion in new funds over the same period was still a third of his decline over the same period. In 2022.

Photo: Alex Plavevski, EPA-EFE

Economists say the SAFE data, which measures net flows, may reflect trends in foreign companies’ profits and changes in the size of their operations in China. According to data from the National Bureau of Statistics, profits of foreign-affiliated companies in China fell 6.7% last year compared to the previous year.

Earlier figures released by China’s Ministry of Commerce showed that new foreign direct investment into China fell to a three-year low last year. The ministry’s figures do not include reinvested profits from existing foreign companies and are less volatile than the SAFE figures, economists said.

The continued weakness highlights how foreign companies are pulling money out of the country due to geopolitical tensions and rising interest rates in other countries.

Developed countries are raising interest rates while the Chinese government lowers them to stimulate the economy, making it more attractive for multinationals to store cash overseas instead of in China. A recent survey of Japanese companies in China shows that most of them reduced or kept their investments flat last year, and the majority do not have a positive outlook for this year. Ta.

The government’s efforts to encourage foreign companies to return post-pandemic have been insufficient, and the Chinese government will need to do more to succeed in its objective.

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

This shows that the European Union is keen to expand in the world’s second-largest economy, even as it has increased scrutiny of these investments due to security concerns. According to the report, the share of Germany’s total foreign direct investment in China expanded to 10.3% last year, the highest since 2014.