Despite concerted efforts in China to woo global companies and foster an “open” business environment, foreign direct investment (FDI) into the country witnessed a significant decline of 26.1% year-on-year in the first quarter of 2024, according to data released by the Commerce Ministry.
China attracted 301.7 billion yuan ($41.7 billion) in inbound foreign investment between January and March. While this figure reflects a 41% increase from the previous quarter, the growth rate slowed notably in March, with less than 90 billion yuan flowing in, down from 113 billion yuan in January and 102 billion yuan in February.
This downturn marks China’s weakest first quarter since 2020 when the country grappled with the initial wave of COVID-19 infections.
Despite these challenges, China’s leadership has continuously pledged its commitment to creating a more hospitable business environment for global investors. Speaking at the China Development Forum in March, Premier Li Qiang reaffirmed the government’s intention to enhance the business climate and initiate reforms to foster greater openness and cooperation with the global community.
In a bid to counteract the decline in FDI, China’s cabinet recently announced a set of measures aimed at bolstering foreign investment. These initiatives include expanding market access and relaxing certain regulations.
However, Ji Xiaofeng, an official from the Commerce Ministry, attributed the decline partly to a high comparative base from the same period last year. She also highlighted improvements in the structure of foreign investment.
China had experienced consistent growth in foreign direct investment during the COVID-19 pandemic years before seeing an 8% decline in 2023. Ongoing concerns regarding a potentially uneven economic recovery and escalating geopolitical tensions, particularly with the U.S., continue to dampen investor sentiment.
A recent warning from the Asian Development Bank highlighted vulnerabilities in China’s property market and the waning momentum in its post-pandemic economic rebound, suggesting potential challenges for the region’s growth prospects.
Additionally, despite its outward focus on openness, China’s increased emphasis on national security has prompted foreign companies to reconsider their operations in the country, with concerns over espionage crackdowns looming large.
While some officials have sought to downplay the decline in FDI, noting that China’s investment trend aligns with global patterns, the challenges remain palpable. Interestingly, there were some positive developments, with investment from Germany surging by 48% in the quarter. This uptick followed German Chancellor Olaf Scholz’s recent three-day visit to China, showing the potential for bilateral economic cooperation amidst broader challenges.
