Foreign direct investment to China slumps to 30 year low

Business Times Published Mon, Feb 19, 2024 

The government’s efforts to get overseas companies to return after Covid are falling short, and more will be needed if Beijing is to succeed in its aims. 

FOREIGN businesses’ direct investment into China last year increased by the lowest amount since the early 1990s, underscoring challenges for the nation as Beijing seeks more overseas funds to help its economy.

China’s direct investment liabilities in its balance of payments stood at US$33 billion last year, according to data from the State Administration of Foreign Exchange (Safe) released on Sunday (Feb 18). That measure of new foreign investment into the country – which records monetary flows connected to foreign-owned entities in China – was 82 per cent lower than the 2022 level and the lowest since 1993.

The data shows the effect of the Covid lockdowns and weak recovery last year. In a first since 1998, the investment fell in the third quarter of 2023, before recovering a bit to post growth in the final quarter.

Safe’s data, which gauges net flows, can reflect trends in foreign company profits, as well as changes in the size of their operations in China, according to economists. Profits of foreign industrial firms in China dropped 6.7 per cent last year from the prior year, according to National Bureau of Statistics data.

Earlier figures from the Ministry of Commerce showed new foreign direct investment (FDI) into China fell last year to the lowest level in three years. Mofcom’s figures do not include reinvested earnings of existing foreign firms and are less volatile than the Safe figures, economists have said.

The government’s efforts to get overseas companies to return after Covid are falling short, and more will be needed if Beijing is to succeed in its aims. The continuing weakness highlights how foreign companies are pulling money out of the country due to geopolitical tensions and higher interest rates elsewhere.