Foreign Direct Investment (FDI) in China from abroad has decreased by 28.2% compared to the same period last year, up until May of this year.
Despite the Chinese government’s active efforts to attract foreign capital for economic stimulation, overseas investment has declined, reflecting uncertainty in China’s economic recovery.
According to the Chinese Ministry of Commerce on the 23rd, the number of new foreign-invested companies in China from January to May this year reached 21,764, marking a 17.4% increase compared to the same period last year. However, the actual FDI amounted to 412.51 billion yuan ($64.7 billion), a decrease of 28.2% compared to the same period last year.
Following a 27.9% decrease in foreign investment in April compared to the same period last year, the decline continued to worsen in May. Foreign investment in China has been decreasing since June last year, marking 12 consecutive months of decrease.
From January to May 2023, foreign investment in China amounted to 574.81 billion yuan ($90.1 billion).
With this, the Chinese Ministry of Commerce explained that while the growth rate has decreased, the absolute scale of foreign capital invested remains at a high level.
The decline in FDI is analyzed to be due to foreign companies downsizing or moving their businesses to India, Brazil, and Southeast Asia amidst increased geopolitical uncertainty, slowed consumption, real estate instability, and escalating U.S.-China tensions.
The Chinese authorities have promised to expand benefits for foreign companies, but actual incentives and reduction of non-tariff barriers and discrimination against domestic companies have not been implemented. As a result, the declining investment attractiveness has been cited as a persistent reason why foreign investment continues to decline.
Last year, the growth rate of foreign direct investment (FDI) in China decreased by 82% compared to 2022, recording the lowest level since 1993. China also recorded a capital outflow of $68.7 billion for the first time in five years last year.
China’s net capital outflow was the first in five years since recording $85.8 billion in 2018.
Meanwhile, by industry, 28.4% of foreign direct investment, totaling 117.1 billion yuan, was directed towards the manufacturing sector. This represents a 2.8% point increase from the previous year. In advanced manufacturing, 50.41 billion yuan was effectively utilized, accounting for 12.2% of the total actual foreign investment usage.
This represents a 2.7 percentage point increase compared to the same period last year. Foreign investment in the manufacturing of smart consumer devices and professional technical services increased by 332.9% and 103.1%, respectively. This was facilitated by China’s corporate tax reductions for advanced manufacturing, expanded investment permissions for strategic enterprises within China, and permits for bond issuance. These incentives played a crucial role in attracting investments. Structural adjustments and capital shifts are rapidly continuing in the advanced manufacturing sector.
Investments from Germany and Singapore in China increased by 24.2% and 16.2% respectively. China continues to face ongoing economic stagnation due to factors such as the real estate downturn, high local government debt, and deflation concerns.
