The latest data from China’s balance of international payments (BOP) reveals a significant development in foreign direct investment (FDI) inflows. In the third quarter of 2023, quarterly FDI inflows to China amounted to approximately -$11.8 billion. This marks the first instance of inward FDI flows turning negative since the data was initially published in 1998. The negative figure suggests that foreign investors are withdrawing money from China at a faster pace than they are investing in the country.
Several factors contribute to this downturn. Geopolitical tensions, particularly strained relations with the United States, are noted as significant factors. Additionally, China’s low-interest rates and investor wariness amid a continued economic slowdown contribute to the decline in foreign investment.
The exit of multiple businesses from China, including Vanguard, one of the world’s largest asset management firms, aligns with this trend. The decision to withdraw operations and funds from China underscores the challenges and uncertainties faced by foreign entities operating in the country, driven by a complex interplay of geopolitical, economic, and financial factors.