Dongguan City in Guangdong Province, once known as the "world's factory," has seen many once-bustling factory zones within industrial parks turn into empty, deserted areas due to foreign investment withdrawals. (Google webpage screenshot)
People News: Just how severe has the drop in foreign investment in China been this year?
Recently, the CCP Ministry of Commerce released its latest statistics showing that from January to September 2024, China’s actual use of foreign capital amounted to 640.6 billion RMB (approximately $89.9 billion USD), a year-over-year decrease of 30.4%. While countries like Germany and Singapore saw increased investments in China, most countries experienced either declines or slow growth in their investments.
Before 2022, China attracted substantial foreign investment, maintaining robust growth even amid the pandemic from 2020 to 2022, with foreign capital reaching a historic peak of $189.1 billion USD in 2022. However, investment started to decline in 2023, totaling $163.25 billion USD for the year, a 13.68% year-over-year drop.
Since the beginning of this year, foreign investment in China has been declining at an accelerated pace.
From January to March, China’s actual use of foreign capital amounted to 301.67 billion RMB, a 26.1% year-over-year decline.
From January to June, the amount was 498.91 billion RMB, a 29.1% year-over-year decline.
The drastic decline in foreign investment is undoubtedly a blow to the CCP’s image.
In recent years, the CCP has proclaimed its commitment to revitalizing the struggling economy through greater openness to foreign investment and has introduced a series of high-profile initiatives to attract foreign capital. These include:
Deepening reforms in foreign investment access in manufacturing, fully lifting restrictions on foreign investment in the manufacturing sector.
Issuing the 2024 edition of the "Special Management Measures for Foreign Investment Access (Negative List)." Compared to the 2021 version, restrictions were reduced to 29 items, further easing access for foreign investors.
Publishing the “Action Plan for Enhancing High-Level Openness and Attracting Greater Foreign Investment,” which includes measures such as reasonably reducing the negative list for foreign investment access, launching pilots to ease foreign investment in technology innovation, and expanding access to foreign financial institutions in banking and insurance.
Promoting high-standard institutional opening in pilot free trade zones, with replication and promotion of trial measures covering areas like goods trade, services trade, personnel entry, digital trade, business environment, and risk control to enhance the openness level of free trade zones.
The sheer number of these measures, their broad scope, and intensity are undeniable, but what has been the actual outcome?
The official data above reveals that the CCP’s efforts to expand openness and attract foreign investment have had minimal real impact. Foreign investment in China not only continues to fall, but the rate of decline is accelerating. The actual situation may be even worse than the CCP’s official statistics suggest.
This accelerating downward trend in foreign investment shows, at the very least, that the honeymoon between foreign businesses and the CCP is over, and it will not be easy for the CCP to win back foreign investors who have become wary of its tactics.
Those familiar with China’s economy understand the vital role of foreign direct investment in economic growth and employment. Foreign capital has long been an essential driver of China’s economic growth, playing a particularly significant role in boosting exports. For example, in 2023, the total import-export volume of foreign-invested enterprises accounted for 30.2% of China’s total foreign trade. Foreign companies contributed over 20% to both operating revenue and total profit among industrial enterprises above a designated size, creating numerous jobs.
Based on the figures for the first nine months, China’s foreign investment for the entire year could be under USD 120 billion, nearly $60 billion less than the 2022 peak. Without this reduction, the $60 billion would have contributed substantially to economic growth and employment; with the added impact on the supply chain, the scale would be even larger.
In summary, the ongoing decline in foreign investment will undoubtedly add further hardship to China’s already struggling economy.
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