China’s State Administration of Foreign Exchange released data on China’s international balance of payments for the period April-June, showing the first negative growth in foreign direct investment (FDI) in three quarters. Due to business contraction, new investment in China by foreign entities (e.g. construction of factories) was lower than capital withdrawals from China.
Foreign companies’ direct investment in China decreased by $14.8 billion, with outflows exceeding inflows for factory construction and M&A funds. This capital outflow surpassed the $12.1 billion in negative growth recorded in July-September 2023, which was the first quarter of negative growth since collection of such statistics began in 1998.
China’s economic stagnation, caused by insufficient domestic demand, has reduced foreign investment interest. The turning point for potential investors was Beijing’s enforcement of strict COVID-19 controls during the years following the start of the pandemic.
The Shanghai lockdown in spring 2022 caused economic turmoil, leading to a significant decline in FDI during the period April-June 2022. Although strict COVID policies ended in January 2023, China’s economy has not fully recovered, now suffering from weak domestic demand linked to the country’s current real estate slump.
China’s economic recovery remains weak, with Q2 2024 GDP growth slowing to 0.7% quarter-on-quarter, down from 1.5% in Q1. Net debt outflows from foreign-invested enterprises in China reached $22 billion, the highest since comparable data became available in 1998, indicating that overseas parent companies are withdrawing funds from their local subsidiaries.
Source: Nikkei, August 12, 2024
https://zh.cn.nikkei.com/china/ceconomy/56392-2024-08-12-10-14-19.html