Foreign direct investment in China falls to lowest level in decades

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China reported its smallest annual foreign direct investment since the 1990s last year, as the world’s second-largest economy struggled to recover from the pandemic and investors sought higher yields elsewhere.

China’s direct investment liabilities, a gauge of foreign capital flowing into the country, totalled about $33bn in 2023, according to data released late on Sunday by the State Administration of Foreign Exchange. This was an 82 per cent decline from the previous year and the lowest annual figure since 1993.

The SAFE gauge is more volatile than other direct investment indicators as it includes a wider range of activities linked to foreign capital inflows. The reading comes as Beijing struggles to reignite the country’s stagnant economy as it seeks to counter a property crisis, weak domestic demand and low investor confidence.

At the first meeting of the country’s cabinet after China’s lunar new year holiday, premier Li Qiang urged officials on Sunday to work on “confidence boosting” and “focus on solving practical issues that concern the masses and enterprises”, according to a readout from state news agency Xinhua.

Foreign direct investment has fallen amid geopolitical uncertainty. Beijing has also cracked down on foreign consultancies over the past year amid concerns that international businesses sharing sensitive information to clients could pose a national security threat.

Higher interest rates in other markets have prompted foreign businesses to pull money out of China to chase higher yields elsewhere. “Most economists believe that the central banks of major developed economies will start . . . interest rate cuts,” said Wang Chunying, SAFE’s spokesperson, indicating that this could lessen the chance of withdrawals.

China’s benchmark CSI 300 stock index fell 11 per cent in 2023 amid slowing growth and as policymakers’ muted response to property market woes failed to reassure investors. On Monday the gauge rose more than 1 per cent on return from a week-long lunar new year holiday.

But that still left the index down 1 per cent for the year to date despite state-backed buying efforts launched ahead of the holiday to shore up market confidence.

Financial Times calculations based on Chinese commerce ministry data compiled by Wind show that FDI fell 34 per cent to Rmb72.8bn ($10bn) year on year in September, the biggest decline since monthly figures became available in 2014. The commerce ministry data is a narrower gauge than the SAFE measure, covering only new inbound investments.

The latest SAFE reading offered some grounds for optimism. In the fourth quarter of 2023, there were $17.4bn of investments. This followed a deficit, the first ever, in the third quarter, SAFE data showed. In another sign of resilience, direct investment in China by German companies reached a record $13bn last year, according to a German Economic Institute report.

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