Foreign corporate investment collapsing in China

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With the Chinese Yuan depreciating against the US Dollar, keeping the USD/CNY pinned into yearly highs, economists at Nataxis note that things could continue to deteriorate for the Renminbi as foreign direct investment in China has collapsed recently, sparked by hostility from the Chinese government towards foreign corporate entities and a slumping domestic Chinese economy.

Direct investment by foreign companies has completely collapsed, from $400 billion annually in 2020 to just $20 billion in 2023.

Direct investment by foreign companies has collapsed in two years

This reflects a sharp deterioration in China’s image among foreign companies, which is a consequence of the significant slowdown in the Chinese economy, the Chinese government’s increasingly hostile attitude towards foreign companies in China, rising political risk, US and European sanctions against China, and the prospect of higher tariffs on Chinese products in the United States and Europe.

This trend in foreign investment in China is reinforcing the depreciation of the renminbi.

The sudden decline in China’s attractiveness for foreign companies is probably explained by:

The decline in China’s growth outlook, due to population ageing and declining productivity gains.

(Declines in direct foreign investment) is shifting foreign companies’ investment to other countries, particularly in Southeast Asia and India, and is stimulating growth in these other countries.