State data showed that China lost a record USD 15 billion of foreign investment last quarter. Bloomberg reported that if the decline continues through 2024, it would be the first annual net outflow of cash since at least 1990.
This is reflected in investors’ deep pessimism about China’s slowing economy as foreign firms scramble to reduce their exposure in light of Beijing’s growing hostility with the West.
As per the latest data released by the State Administration of Foreign Exchange, the direct investment liabilities in China’s balance of payments fell almost USD 15 billion in the April-June quarter, only the second time the figure turned negative. It was down about USD 5 billion for the first six months.
As Bloomberg reports, foreign investment in China has slumped in recent years after hitting a record USD 344 billion in 2021. The figures released earlier by China’s Ministry of Commerce showed that new foreign direct investment (FDI) into the country in the first half of 2024 was the lowest since the start of the pandemic in 2020.
The slowdown in the economy and rising geopolitical tensions have led some companies to reduce their exposure, and the rapid shift to electric vehicles in China also caught foreign car companies off guard, prompting some to withdraw or scale back their investments.
Meanwhile, experts say that multinationals have more reasons to keep cash abroad than in China, as advanced economies have been raising interest rates while Beijing has been lowering them to stimulate the economy.
It has been observed that Chinese outbound investment also hit a record, with firms sending USD 71 billion overseas in the second quarter, a rise of more than 80 per cent from USD 39 billion in the same period in 2023. Chinese companies have been rapidly stepping up investment, with money going into projects such as electric vehicles and battery factories.
China, which boasts of being the world’s second largest economy, has been making efforts to attract and retain foreign investment.
The Government led by Xi Jinping has been portraying itself as open and attractive to foreign businesses, anticipating that companies from overseas will bring in advanced technologies and resist pressure from the US and other nations to decouple from China.
The economic troubles in China are further complicated by discrepancies in trade figures. The data released by the State Administration of Foreign Exchange revealed a growing gap in the measurement of China’s trade surplus. In the second quarter of 2024, the trade surplus reached a record USD 87 billion, bringing the total for the first half of the year to nearly USD 150 billion.
This significant difference in trade figures has raised eyebrows, particularly in the United States. Earlier this year, the US Treasury called on China to explain the substantial discrepancies in trade data. However, as per a recent report by the International Monetary Fund (IMF), this discrepancy was primarily due to “different methodologies used to record exports and imports of goods.”
The widening gap in trade figures adds another layer of complexity to China’s economic challenges. As the country grapples with an economic slowdown, geopolitical tensions, and a decline in foreign investment, these discrepancies only serve to heighten concerns about the stability and transparency of China’s financial reporting.
In the short term, the Chinese economy might not feel the tremors. However, this is a clear indication that in the long run, this is going to be a tough battle for China as the world looks to near shore and adjust its risks quite rapidly in order to avoid the brunt and cushion the blow.
