China’s direct investment liabilities in its balance of payments fell by nearly $15 billion in the April-June period, marking the second time the figure has turned negative, according to data from the State Administration of Foreign Exchange released on Friday. In the first six months, the figure fell by about $5 billion.
If the decline continues for the rest of the year, it would be the first annual net outflow since at least 1990, when comparable data became available.
Foreign investment in China has plummeted in recent years after hitting a record $344 billion in 2021. A slowing economy and rising geopolitical tensions have prompted some companies to reduce their exposure, and China’s rapid shift to electric vehicles has also caught foreign automakers by surprise, prompting some to pull back or reduce their investments.
The drop comes despite Beijing’s growing efforts to attract and retain foreign investment, after a slower rise last year. The government wants to show it remains open and attractive to foreign companies, hoping that firms will bring advanced technologies and resist pressure from the United States and other countries to break away from China.
SAFE data, which tracks net flows, can reflect trends in foreign companies’ profits as well as changes in the size of their operations in China. Multinationals have more reason to keep cash overseas than in China, as advanced economies have been raising interest rates while Beijing is cutting them to stimulate the economy.
Previous figures from the Ministry of Commerce showed that new foreign direct investment in China during the first half of the year was the lowest since the start of the pandemic in 2020.
Increase in foreign investment
Chinese overseas investment also hit a record high, with companies sending $71 billion abroad in the second quarter, up more than 80 percent from $39 billion in the same period last year.
Chinese companies have rapidly increased their investments, pouring money into projects such as electric vehicles and battery factories.
The data also show that the anomaly in the measurement of China’s trade surplus continues to grow, reaching a record $87 billion in the second quarter and taking it to nearly $150 billion in the first half of the year. That gap was highlighted by the US Treasury earlier this year in a report asking China to clarify why the numbers were so different.
According to a recent report by the International Monetary Fund, this discrepancy “appears to be caused primarily by the different methodologies used to record exports and imports of goods.”
The gap has widened after a change two years ago in the data used by Chinese authorities and was also driven by a recent surge in production in free zones by foreign companies.
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