China is experiencing a significant outflow of foreign investment while increasing its own overseas investments in 2023, amid ongoing trade tensions with the United States and Europe.
According to the State Administration of Foreign Exchange (SAFE), China’s direct investment liabilities—an indicator of incoming foreign investment—fell by $14.8 billion in the second quarter of this year, with a total decrease of $4.5 billion in the first half of 2023. If this trend continues, 2023 could mark the first annual net outflow of foreign investment from China since records began in 1990.
The U.S. and Europe have encouraged strategies like “China plus one” and friend-shoring, prompting companies to diversify their investments outside of China. Additionally, the European Union has launched anti-subsidy investigations into Chinese imports, further discouraging investment.
As a result, some foreign firms have reduced or withdrawn investments from China, while Chinese manufacturers are expanding operations abroad to avoid potential tariffs. In the first half of 2023, China’s foreign direct investment (FDI) fell 29.1% to $69.5 billion, while the country’s overseas direct investment (ODI) increased by 16.6% to $72.62 billion.
Mao Zhenhua, founder of China Chengxin Credit Management, noted that despite these trends, China still relies on foreign investment for high-tech advancements. He emphasized the importance of maintaining a favorable business environment for foreign companies and the need for Chinese firms to invest overseas to strengthen supply chains and stabilize the economy.
Guan Tao, chief economist at Bank of China International, highlighted that the proportion of foreign investment in China’s high-tech manufacturing sector has continued to grow this year, despite the overall decline. He also pointed out that global FDI dropped by more than 10% in 2023, according to the UN Trade and Development’s World Investment Report.
Chinese officials have downplayed the impact of foreign firms leaving the country, but concerns are growing about the effect on the domestic labor market. Many skilled workers who lost jobs due to factory relocations have turned to low-paying jobs like food delivery.
While some Chinese companies may benefit from reduced competition as foreign firms exit, there are worries that this could lead to complacency and a decline in product quality and innovation.
