Paradise lost? Falling foreign investments in China
Paradise lost? Falling foreign investments in China

Author(s): Maciej Kalwasiński
Subject(s): National Economy, Energy and Environmental Studies
Published by: OSW Ośrodek Studiów Wschodnich im. Marka Karpia
Keywords: The People’s Bank of China; China
Summary/Abstract: The People’s Bank of China has reported that the third quarter of 2023 saw an outflow of foreign direct investment (FDI); this is the first time this has happened in at least 25 years. However, these data do not fully reflect real economic processes. Foreign companies have long appreciated China due to the appealing business conditions on offer. However, the investment climate in this country has been deteriorating in recent years due to Beijing’s domestic policy and its escalating rivalry with Washington. The People's Republic of China led by Xi Jinping has given special priority to economic security, introducing a number of regulations that have adversely affected foreign investors. However, business circles, encouraged by the US and EU authorities to de-risk, have responded to the mounting challenges in different ways. Some companies are cutting investments to reduce the risks associated with their strong ties to the Chinese market, others are increasing expenditure to strengthen and isolate their Chinese operations. Getting the proportions right is a challenge, but a complex mosaic of data paints a picture of a structural decline in FDI in China. FDI indicators may improve in the coming years, but structural processes motivated by economic calculation and political pressure will probably lead to further restrictions on investments in China as part of a gradual, comprehensive reduction of the dependence of foreign business on the Chinese industrial base.

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