FDI in China Drops for 12th Consecutive Month

China

Foreign Direct Investment (FDI) in China decreased for the 12th straight month in May, as reported by China’s Ministry of Commerce. Over the first five months of 2024, FDI totalled $56.8 billion (RMB 412.51 billion), marking a 28.2% decline year-on-year.

Analysts attribute the drop to political risks and China’s sluggish economic recovery post-COVID. A senior Chinese venture capitalist, who requested anonymity, stated, “China’s economic growth rate has no room to accommodate a large amount of foreign investment.”

China’s GDP growth has been unstable, falling from an annual growth of 6-7% pre-pandemic to 3% in 2022 and 5.2% in 2023. The World Bank projects further declines to 4.8% in 2024 and around 4% in the following years.

Frank Liu, a Chinese businessman involved in cross-border investments, highlighted the importance of stable government policies for foreign investors. He noted that recent government crackdowns on various industries, including education and entertainment, have discouraged foreign investment.

Incidents involving foreign companies have also raised alarm. In 2023, Chinese authorities detained employees from several Western firms, including the U.S. due diligence company Mintz Group and the consulting firm Bain & Company. These actions have heightened concerns about operating in China.

Paul Orlando, an adjunct professor at the University of Southern California, noted that many American tech companies and investors are withdrawing from China due to supply chain and political risks. He emphasised the growing concerns about intellectual property protection and industrial espionage.

Despite these challenges, Chinese Premier Li Qiang has called for foreign investment, meeting with American business leaders and promoting visa-free policies to encourage international exchanges. However, actions by the Ministry of State Security, such as raids on Western company offices, have sent mixed signals.

The ongoing trade tensions also impact investor confidence. The U.S. has increased tariffs on Chinese products, with the EU and Canada following suit. In response, China has threatened retaliatory tariffs.

While the outlook appears bleak, the senior Chinese venture capitalist remains cautiously optimistic, suggesting that FDI could rebound if the Chinese economy stabilises.