China’s foreign-investment boon of years past has ended, but economists say all hope is not lost for FDI

Foreign direct investment in China has been falling this year amid de-risking efforts by multinationals and geopolitical wrangling with Western governments

Academics and researchers say China also needs to boost employment, stabilise the property market and raise consumption if it wants to appeal to foreigners

Reading Time:3 minutes

Published: 11:00am, 9 Nov 2023Updated: 11:44am, 9 Nov 2023

China needs to up its game if it hopes to restore confidence in its economy and woo foreign investment, economists and policy advisers say as the world’s second-largest economy has seen a first-ever quarterly deficit in direct investment liabilities.

Wang Tao, chief China economist for UBS Investment Bank in Hong Kong, said the fall in foreign investment has been driven by factors such as “de-risking” efforts by Western governments and the high costs of borrowing in the US dollar.

“All foreign firms are concerned about political and commercial pressure from their governments, as well as other risks. Even though it might not be economically beneficial, they may still consider reducing their participation in China, moving towards the so-called China-plus-one strategy, by adding exposure to other countries,” Wang said at a seminar on Wednesday that focused on the current investment pattern and development prospects in China.

“For foreign investment to return to the level that had been seen over the past decade would be very difficult,” Wang added. “We’re not optimistic, and we believe if it can go back to half of what it was over the past decade, it would be pretty amazing.”

Direct investment liabilities – a broad measure of foreign direct investment (FDI) that includes foreign companies’ retained earnings in China – were at a deficit of US$11.8 billion during the July-September period, according to the preliminary balance of payments data released by the exchange regulator last week.