Foreign direct investment (FDI) in China dropped by 5.1% in the first eight months of the year to CNY 847.2 billion despite an all-out effort to attract foreign capital, according to Ministry of Commerce (MOFCOM) figures. The Ministry, which has not yet published the number in U.S. dollar terms, said the decline was due to the slow recovery of the global economy and a high base last year. From January to July, the U.S.-dollar-denominated total had fallen by 9.8% from a year earlier to USD111.8 billion.“Foreign investment is a market behavior, and periodic fluctuations are normal. We need to look at both scale and structure, as well as both the present and the long term,” the Ministry’s official release said.
The actual use of FDI in the manufacturing sector rose by 6.8% year-on-year from January to August, and that in hi-tech manufacturing increased by 19.7%, which means the quality of investment has continued to improve. During that period, 33,154 new foreign-invested firms were set up across the country, up by 33% compared with the same time last year, and the figures reflected “the confidence of foreign investors in long-term investment in China,” according to a MOFCOM official. Beijing has repeatedly pledged to attract foreign investment to boost its post-pandemic economic recovery, but foreign countries have increasingly been looking to South-east Asia instead. Business lobby groups in China have also raised concerns about restrictions on cross-border data flows, a new anti-espionage law, and a series of investigations into U.S. consultancies, which they said have marred business confidence. In the second quarter, direct investment liabilities – an alternative measurement of new foreign investment in China – plunged to USD4.9 billion, the lowest figure since records began in early 1998, according to the balance of payment data released by the State Administration of Foreign Exchange (SAFE).
“It’s not a big surprise given the escalating geopolitical tensions. We believe the decoupling might be biggest drag on China’s future growth,” economists from Nomura said in a note last month. “The plunging FDI may have significantly weighed on the export sector, as exports by foreign companies operating in China account for about 30% of China’s total exports.” The process seems to have already taken a toll on China’s exports. According to official customs data, exports from foreign manufacturers declined by 15.5% year-on-year in the first seven months of 2023, compared with a 9% general decline among all exporters. “In the past, the impact of geopolitics was more about the future economy, as it had limited impact on the current state of economy,” Lu Ting, Chief China Economist at Nomura, said in a speech earlier this month. “But this year, everyone has already felt the shock,” he said, as reported by the South China Morning Post.
The claim that “U.S. and EU firms are shifting investment away from China to other developing markets” is not true, according to China's Commerce Ministry (MOFCOM). FDI from the U.S. and the EU surged to CNY86 billion in 2022 from CNY74.4 billion in 2018, with a 15.6% growth, MOFCOM Spokesperson He Yadong said. He added that the FDI from countries including the U.S., Germany, France, the UK and Sweden had kept growing in the first seven months this year, indicating that the Chinese market remains attractive to foreign investors. Protectionism is never the right choice. It will not produce excellence, but start a race to the bottom, the Global Times adds.