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German Investment in China Declines Amid Concerns Over Economic Environment

According to a report in German newspaper Handelsblatt, German investors are avoiding China, and German direct investment in China has declined sharply. Some large companies, however, are going against the tide, expanding their businesses in China.

A study commissioned by Handelsblatt and conducted by the Cologne Institute for Economic Research shows that German investment flows to China plunged in the third quarter of 2023, reaching a six-year low of negative €2.2 billion. German equity investment in China fell particularly sharply, with a flow of negative €3.9 billion.

Funds flowing to China from other countries also decreased. During the third quarter of 2023, total foreign investment was negative for the first time in a quarter century, meaning more capital flowed out of China than flowed in. Some large companies like BASF, however, are going against the flow and continuing to expand their business in China.

On the other hand, there were positive signs regarding reinvested profits. Although German reinvestment in China was lower than during prior periods, German companies still reinvested some €1.7 billion of profits earned in China back into their Chinese operations in Q3 of 2023. The study found that many foreign companies operating in China are transferring profits out of the country.

Observers cite several reasons for the investment downturn in China, including a significantly worsened investment environment in recent years as the Communist Party exerts greater control over the economy. China’s economic growth and consumption have also slowed. Many Western countries are also pursuing de-risking strategies to reduce dependence on China.

Source: Radio France International, December 14, 2023