Economic and political worries spur more exits and fewer new entries
An employee of the Korea Exchange Bank in Seoul writes on a stack of Chinese one hundred yuan notes. © Reuters
IORI KAWATE, Nikkei staff writerFebruary 28, 2023 11:36 JST
BEIJING — Investment by foreign companies in China tumbled to its lowest level in 18 years in the second half of last year, buffeted by tensions with the U.S., a dimming growth outlook and fears of possible backsliding on economic reforms.
Foreign direct investment into China totaled $42.5 billion between July and December 2022, according to an official balance of payments. That constituted a 73% decline on the year, the sharpest drop dating back to data in 1999. Half-year totals had averaged more than $160 billion between late 2020 and early 2022.
Meanwhile, foreign direct investment by Chinese companies grew 21% to $84.2 billion. The $41.7 billion net outflow marked the first in five and a half years.
Companies’ reluctance to make new investments in China has been fueled in part by fallout from the country’s zero-COVID policy. Actually utilized foreign direct investment — which includes reinvested profits — in the last quarter of 2022 fell 35% on the year to $33.8 billion, the steepest drop since the availability of comparable data in 1996, according to the Ministry of Commerce.
Recent years have seen almost no new entries by European companies, according to an analysis of investment into China by New York-based Rhodium Group. And among businesses that continue to invest in China, the research firm noted a trend of “internal decoupling,” with companies including large automakers segregating their Chinese and non-Chinese supply chains to limit risks such as technology leaks.
Other companies have scaled back their Chinese operations or pulled out entirely, reflected in balance of payments data as a drag on total investment. By the end of 2022, the number of foreign manufacturers and other companies in the industrial sector in China was down 0.5% on the year, the first decline in three years.
This comes as tensions between Washington and Beijing over advanced technologies have increased risks for companies with China at the center of their supply chains. By the end of last year, Sony Group had moved most of its camera production for Japan, the U.S. and Europe from China to Thailand.