Foreign investors pull out a record $15 billion from China in a quarter

China’s economic slowdown has been worrying investors and increasing pessimism, forcing them to pull out their money from the country. The recent shocking investment numbers are proof to it which shows foreign investors have pulled out a record $15 billion from China in just the last quarter (April-June 2024).

As per the latest data released by the State Administration of Foreign Exchange, the direct investment liabilities in China’s balance of payments fell almost $15 billion in the April-June quarter, only the second time the figure turned negative.  

For the first six months, it was down about $5 million.

As per a report by Bloomberg, if the decline in the investment numbers continues for the remaining year, it would mark the first annual net outflow since at least 1990, when comparable data began.  

The recent years have seen foreign investment into China dwindling after hitting a record $344 billion in 2021.  

The figures released earlier by China’s Ministry of Commerce showed that new foreign direct investment (FDI) into the country in the first half of 2024 was the lowest since the start of the pandemic in 2020.

Why is China no longer attracting foreign investors?

Apart from the slowdown in the economy, rising geopolitical tensions have been turning foreign investors’ sentiment away from China.

Apart from this, a sudden switch to electric vehicles, or EVs, in China has also dampened interest of foreign car firms, with some withdrawing or scaling back their investments.

More interest for investors in other nations

Also, advanced economies are offering higher interest rates unlike Beijing which has been lowering them to improve its economy. This has given multinationals adequate reasons to not to invest in China and pump in their cash where there are being offered better returns.  

China fail in its attempts to lure foreign investors 

China, which boasts of being the world’s second largest economy, has been making all efforts to attract as well as retain foreign investment.  

The government led by Xi Jinping has been portraying itself as open and attractive to foreign businesses, in anticipation that companies from overseas will bring in advanced technologies and resist pressure from the US and other nations to decouple from China.

Increase in outbound investment

Chinese outbound investment reached a new high in the second quarter, with companies investing $71 billion overseas — an increase of over 80 per cent from the $39 billion recorded during the same period last year.  

This surge in investment is largely directed towards projects like EVs and battery factories.

The data released by the State Administration of Foreign Exchange also revealed a growing discrepancy in the measurement of China’s trade surplus, which hit a record $87 billion in the second quarter and nearly $150 billion for the first half of the year.  

This disparity was highlighted by the US Treasury earlier this year, which urged China to explain the significant differences in trade figures.

However, as per a recent report by the International Monetary Fund (IMF), this discrepancy was primarily due to “different methodologies used to record exports and imports of goods.”