Foreign companies pulled more money out of China last quarter, a sign that some investors are still pessimistic even as Beijing implements stimulus measures aimed at stabilizing growth.
China’s direct investment liabilities in its balance of payments fell by $8.1 billion in the third quarter, according to data from the State Administration of Foreign Exchange released on Friday. The indicator, which measures foreign direct investment in China, fell by almost US$13 billion in the first nine months of the year.
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Foreign investment in China has fallen in the last three years, after reaching a record in 2021, a victim of geopolitical tensions, pessimism regarding the world’s second largest economy and stronger competition from Chinese national companies in industries such as automobiles. If the decline continues throughout the rest of the year, it would be the first annual net outflow of FDI since at least 1990, the beginning of the historical series.
Companies that have withdrawn some operations in China this year include automakers Nissan Motor Co. and Volkswagen AG, as well as others such as Konica Minolta Inc. said in July it was exiting a joint venture in China, while International Business Machines Corp. is closing a hardware research team in the country, a decision that affects around 1,000 employees.
The prospect of an expanded trade war and deteriorating relations with Beijing during US President-elect Donald Trump’s second term could weigh further on investment. “Geopolitical tension” is the main concern for members of the American Chamber of Commerce in Shanghai, according to the group’s president, Allan Gabor.
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“This makes it difficult to plan large investments, but on the contrary, we see many members making small and medium investments,” Gabor said in an interview with Bloomberg TV last week during the China International Import Expo. “It’s a much more surgical investment environment.”
Still, the government’s efforts in late September to stimulate the economy have already benefited a group of foreign investors. The value of shares held by foreigners rose more than 26% compared to August, according to central bank data. China’s benchmark stock index gained nearly 21% in September after the start of a coordinated stimulus effort, although some have since given up some of those gains.
In contrast, China’s overseas investment has increased sharply. In the third quarter, Chinese companies increased their overseas assets by around US$34 billion. That brings outflows so far this year to $143 billion, the third-highest total on record for the period.
Chinese companies such as BYD Co. have been rapidly increasing their overseas presence to secure raw materials and build production capacity in foreign markets. This trend is likely to continue and expand as more countries impose tariffs on some of China’s exports, such as steel. The US, for example, threatens to impose punitive tariffs on all Chinese products.
