China stats show shift from FDI to investment abroad

China has seen an outflow of foreign investment at home and an increase in its own external investment so far this year during its trade war against the United States and Europe.

China’s direct investment liabilities, an indicator of incoming foreign investment, fell by US$14.8 billion in the second quarter of this year, according to the latest data released by the State Administration of Foreign Exchange (SAFE).

The figure was down US$4.5 billion for the first six months. Bloomberg said if the decline continues in the second half of this year, it would be the first annual net outflow of foreign investment from China since 1990, when comparable data begins.

In the third quarter of 2023, China’s director investment liabilities fell US$11.8 billion, the first decline in decades. For the whole year of 2023, the figure increased by US$33 billion. The gain was down by 82% from the level in 2022, and it was the lowest since 1993.

In recent years, the US has encouraged its companies to implement a “China plus one” or friend-shoring strategy to avoid investing only in China and diversify business into other countries. The European Union since last year has also initiated anti-subsidy probes on imported Chinese electric vehicles and clean energy products.

Due to these changes, some foreign firms decided to cut investments in China and leave the country. Some Chinese manufacturers started building factories in Europe to try to avoid potential tariffs.

In the first half of this year, China’s foreign direct investment (FDI) fell 29.1% to 498.9 billion yuan (US$69.5 billion) from the same period of last year, the Ministry of Commerce said last month. The country’s overseas direct investment (ODI) increased 16.6% to US$72.62