Foreign investments flee China amid economic and geopolitical turmoil

In China, in the second quarter of 2024, there was a record outflow of foreign investments amounting to €14 billion. This reflects growing market pessimism regarding the future of the world's second-largest economy, reports "Bloomberg."

Foreign investors withdrew a record amount of money from China last quarter, according to "Bloomberg," citing data from China's State Administration of Foreign Exchange (SAFE). The data shows that China's liabilities related to direct investments decreased by nearly €14 billion from April to June 2024.

Should the decline continue for the rest of the year, it would be the first annual net outflow since at least 1990, when comparable data begins, it reads.

"Bloomberg" reports that foreign investments in China have significantly decreased in recent years after reaching a record high of €313 billion in 2021. Economic slowdown and rising geopolitical tensions have prompted companies to reduce their presence in China. Additionally, the rapid development of the electric vehicle market surprised foreign automotive companies, leading to the reduction or withdrawal of some investments.

This decline occurred despite Beijing's efforts to attract and retain foreign investments, especially after recording the lowest growth in history in the previous year. The Chinese government continues to portray the country as attractive to foreign companies, hoping to introduce advanced technologies and resist pressure from the US and other countries to reduce dependence on China.

SAFE data, which monitors net flows, may reflect changes in profits and the scale of operations of foreign companies operating in China. Amid rising interest rates in developed countries, international corporations have increasing reasons to keep their financial resources outside of China, primarily as Beijing lowers interest rates to stimulate the economy, it reads.

Earlier data from the Ministry of Commerce showed that the level of new direct foreign investments in China in the first half of the year was the lowest since the beginning of the pandemic in 2020.

The agency indicates that, on the other hand, Chinese investments abroad reached a record level—in the second quarter, Chinese companies invested €66.5 billion abroad, an increase of over 80 per cent compared to €36 billion from the same period last year. Chinese enterprises heavily invest in projects such as electric vehicles and battery factories.

The data also shows an increasing difference in China's trade surplus measurement, which amounted to a record €82 billion in the second quarter, increasing it to nearly €143.5 billion in the first half of the year. The US Treasury Department has noted this discrepancy, calling on China to explain the causes of these differences.

According to a recent report by the International Monetary Fund, this discrepancy is mainly due to differences in the methods of recording exports and imports of goods. Bloomberg reports that this gap widened after changes in the data used by Chinese authorities two years ago and the increase in production in free trade zones by foreign companies.