A measure of foreign investment into China turned negative for the first time since records began in 1998, highlighting how foreign companies are pulling money out of the country due to geopolitical tensions and higher interest rates elsewhere.
China’s direct investment liabilities in its balance of payments declined by $11.8 billion in the third quarter, the country’s foreign exchange administration said. The measure records monetary flows connected to foreign-owned entities in China.
Economists have said the decline in FDI by the balance of payments measure reflects less willingness by foreign companies to re-invest profits made in China in the country.
That’s due to strained ties with the West and the rising attractiveness of keeping cash overseas. Advanced economies have been raising interest rates while China has been cutting them to stimulate the economy.
The data could mean “there are more divestments than new investments,” said Michelle Lam, Greater China economist at Societe Generale SA. “That’s quite concerning. I think it’s just continued diversification of supply chains. Confidence will take time to recover following the more supportive measures.”
China’s other main measure of foreign direct investment inflows, which is released by the commerce ministry, recorded an 8.4% decline in the first three quarters of this year, compared with the same period in 2022. That measure is recorded in yuan terms, so can be impacted by a decline in the Chinese currency’s value relative to the US dollar.
Beijing has stepped up efforts to woo foreign investors this year. But foreign business lobby groups in China have called for more support to improve sentiment.