FDI into China in 2023 increased by the lowest amount since the early 1990s amid growing disinvestment and concerns about the country’s sluggish economic recovery.
According to data released by the State Administration of Foreign Exchange on Sunday, China’s direct investment liabilities – including foreign companies’ retained earnings in the country – reached $33bn (237.53bn yuan) in 2023. The measure is 82% lower than the 2022 level and the lowest recorded since 1993, one year after private business ownership gained full legal status in the country.
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In November 2023, Chinese officials reported a $11.8bn drop in direct investment liabilities during the third quarter of 2023, showing how growing tensions between Beijing and the West impact the country’s investment climate.
Despite the swift economic recovery following Covid, FDI inflows into China slowed in 2022 as a result of the government’s Zero Covid policy – in place until the end of that year – coupled with economic policy uncertainty.
At the same time, Beijing has stepped up its crackdown on foreign companies. In January 2024, Beijing launched an anti-dumping investigation into French brandy imports. The announcement came a few weeks after the EU Commission began investigating allegations of biodiesel dumping from China into the EU market and three months after Brussels said it was looking into claims that China was illegally subsidising its electric vehicle market.
The Chinese tech sector, however, has seen the most significant drop in market valuation, as continued pressure from the Chinese authorities wiped $1.1trn off China’s major tech companies between 2021 and 2023, according to Refinitiv data cited by Reuters.
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By GlobalDataThe US Department of State warns that China’s market remains a “relatively restrictive environment for foreign investors” because of prohibitions on investment in key sectors, as well as unpredictable regulatory enforcement.
For that reason, many companies have diversified their investments away from China, instead announcing expansion plans in other Asian nations such as India, Malaysia, the Philippines and Vietnam.
“The number of greenfield projects recorded in 2023 was less than half the level recorded in 2019,” Glenn Barklie, head of FDI Services at GlobalData, told Investment Monitor. “Construction and real estate, tourism and food are the most impacted sectors. Because of that, industrial investors wish to reduce their reliance on China as a single or main production base.
“The fallout from Covid-19 coupled with rising geopolitical tensions (particularly with the US) has led to the decline in inward investment. China’s economy has also been growing at a much slower rate, making it a less attractive market.”
