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RFA: China’s Use of Foreign Capital Continues to Fall

Radio Free Asia (RFA) reported that China’s Ministry of Commerce  has released data on foreign direct investment (FDI) in China. Nationwide FDI was RMB 987.01 billion for the first ten months of this year, a year-over-year decrease of 9.4 percent. The decline expanded from the 8.4 percent over the previous nine months, and was the fifth consecutive month of continuous decline.

Foreign investors are pulling more money out of China than they put in. This is happening through repatriation of profits, repayment of intra-company loans, and the sale of assets. The trend reflects that foreign businesses are disillusioned with China’s economic prospects and policy climate.

Some analysts expressed the belief that Xi Jinping’s national security policy has caused a large-scale flight of foreign capital, and that the situation will be difficult to change in the short term. With national security remaining Beijing’s top priority, the downward trend in foreign investment will likely not change any time soon, even if the Chinese government were to launches a gesture promoting foreign investment. China currently faces many economic challenges in many areas, including taxation, technological upgrades, rapid withdrawal of foreign investment, a surge in unemployment, stagnant growth, and decline in international cooperation. These are all dangerous signals regarding the Chinese economy.

China’s high-tech, medical equipment and high-end instrument industries are not doing too poorly in terms of foreign direct investment. Investment into the service industry, however, has taken a big hit, declining by 15.9 percent. The service industry is responsible for more of the country’s employment and accounts for a greater share of GDP than China’s manufacturing sector.

Just a short while ago, China announced that third-quarter foreign investment (in U.S. dollars) was negative for the first time, with a deficit of US$11.8 billion. Meanwhile, the most recent announcement by China’s Ministry of Commerce reported a positive number for foreign direct investment, denominated in RMB. Although calculation using RMB resulted in a positive number, actual U.S.-dollar-denominated foreign direct investment has been negative. The Chinese Ministry of Commerce has not released FDI data measured in U.S. dollars since August this year.

Source: RFA, November 20, 2023