FOREIGN investors pulled a record amount of money from China last quarter, with the second-only fall on record likely reflecting deep pessimism about the world’s second-largest economy.
China’s direct investment liabilities in its balance of payments dropped almost US$15 billion in the April to June period and were down about US$5 billion for the first six months of the year, according to data from the State Administration of Foreign Exchange (Safe) released on Friday (Aug 9).
If this continues for the rest of the year, it would be the first annual net outflow since at least 1990, when comparable data begins.
Foreign investment into China has slumped in recent years after hitting a record US$344 billion in 2021. 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 firms off guard, prompting some to withdraw or scale back their investments.
The fall comes despite Beijing’s growing efforts to attract and retain foreign investment, following the smallest increase on record last year. The government wants to show it remains open and attractive to foreign businesses, in the hope that companies will bring advanced technologies and resist pressure from the US and elsewhere to decouple from China.
Safe’s data, which tracks net flows, can reflect trends in foreign company profits, as well as changes in the size of their operations in China. Multinationals have more reason to keep cash abroad rather than in China, as advanced economies have been raising interest rates while Beijing is lowering them to stimulate the economy.
Earlier figures from the Ministry of Commerce showed that new foreign direct investment into China during the first half of the year was the lowest since the start of the pandemic in 2020. BLOOMBERG
