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Foreign Investment in China Goes Negative for First Time in Decades

Foreign investment into China turned negative for the first time on record in the third quarter.

Why it matters: The outflow of foreign direct investment, or FDI, is a reflection of the sharp deterioration in China’s economic prospects. The world’s second-largest economy continues to struggle with a sluggish COVID recovery, a deterioration in consumer and business confidence, and ongoing de-coupling and de-globalization trends.

State of play: A broad measure of FDI published by China’s State Administration of Foreign Exchange on Friday showed an outflow of $11.8 billion in the third quarter, the first negative print since the agency began compiling the data in 1998.

What they’re saying: “Some of the weakness in China’s inward FDI may be due to multinational companies repatriating earnings,” Goldman Sachs analysts wrote.

  • 💭 Our thought bubble: These capital outflows reflect collapsing corporate confidence in China’s state-led economic model under the leadership of President Xi Jinping. Xi has shifted the focus of the ruling Communist Party toward restoring China to the top ranks of global power, rather than delivering meaningful improvements to Chinese standards of living.

The bottom line: This doesn’t mean China’s economy is doomed. It doesn’t need foreign investment the way it once did.

  • But the outflow of foreign investment reflects just how quickly expectations about Chinese growth have shifted.

Source : AXIOS