China is seeing some of its lowest levels of FDI inflows in decades. Foreign businesses have taken $15bln out of China in the second quarter, according to data from the State Administration of Foreign Exchange.
This is a historic low for China, and the second time ever that they have recorded a net outflow in their balance of payments.
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Perceptions of a bleak future
The rise of geopolitical tensions, lagging effects from the pandemic, the shift to EVs and a heightened risk perception are likely factors explaining investor pessimism.
China has also lowered interest rates to stimulate their economy, while other developed countries have raised them. This incentivizes NMEs to store their revenues overseas.
Foreign investments peaked in 2021 at $344bln before hitting a huge low in 2023, when they registered inflows of just $33bln.
The fall comes despite efforts from Beijing to attract FDI.
Outflows still on the rise
In contrast, FDI outflows from China are staying strong. Chinese businesses have sent $71bln overseas in the second quarter. This represents an 80% increase from the $39bln in outflows from the same period in 2023.
They have particularly focused on investments relating to EVs and battery factories.
It is worth noting that the gap in the balance of payments may also be due to “different methodologies used to record exports and imports of goods in BOP and Customs,” according to a report from the International Monetary Fund.
