China's FDI drops in first four months

Despite actively wooing overseas investors as part of its post-pandemic economic recovery, China’s foreign direct investment (FDI) shrank in the first four months of the year. The country’s actual utilization of FDI reached USD73.5 billion in the January-April period, dropping by 3.3% from a year earlier, according to the Ministry of Commerce (MOFCOM). China received USD39.71 billion worth of investments in the first two months of 2023, showing a 1% year-on-year increase. The Ministry, though, did not provide FDI figures in U.S. dollar terms for the first quarter. In yuan terms, China’s actual FDI grew by 4.9% to CNY408.45 billion in the first quarter of 2023, while foreign investments from January to February amounted to CNY264.88 billion, representing a 6.1% increase, year-on-year. The actual use of foreign investment measures the amount of money that China has already received when carrying out a contract with foreign companies, and the figure is released by the Ministry of Commerce every month as an indicator of FDI.

The slowing momentum comes as China’s industrial output and retail sales growth in April didn't meet forecasts. Both the onshore and offshore yuan also weakened past 7 per U.S. dollar for the first time in five months. For the first four months of the year, foreign capital flows into the high-end manufacturing industry surged by 37.1%, year-on-year, while investments in high-end technology services rose by 6% from the previous year. Investments from France grew nearly sixfold from the same period last year, while FDI from the United States more than tripled, year-on-year, according to the Ministry.

China’s recent raids on Bain & Company and Capvision have set off alarms among foreign investors about intensifying law enforcement. The investigations “send a worrying signal and heighten the uncertainty felt by foreign companies operating in China”, said the European Union Chamber of Commerce in China. The American Chamber of Commerce in Shanghai also called on authorities to “more clearly delineate” which areas of due diligence were permissible, saying such crackdowns were “not conducive to restoring business confidence and attracting foreign investment”.

Despite the investigations, China has ramped up efforts to attract investment this year, with international events, forums and expos. Local governments are also pushing full steam ahead, with Shanghai pledging a one-time cash award to new FDI projects and foreign investors who reinvest their profits in the city, the South China Morning Post reports.