China. Foreign Direct Investment Inflow Declines Sharply

More trouble for the Chinese economy, which is struggling to recover from the covid pandemic. This time, it is foreign direct investment (FDI) that fooled analysts’ expectations: in January 2024, FDI inflows into China recorded an unprecedented 11.7% year-on-year decline. Political tensions between China and the United States over Ukraine and Taiwan have increased the reluctance of foreign companies to scale up their financial operations in China. According to China’s Ministry of Commerce, “direct investment by foreign companies in the world’s second-largest economy grew in 2023 by just $33 billion, falling to a historic low since 1993.” As a consequence, FDI inflows into China fell 82% last year compared to the results recorded in 2022.

However, the Ministry of Commerce itself noted that in January 2024 alone, 4588 new foreign-invested enterprises were set up in China, up 74.4% compared to the results recorded in January 2023.

Foreign direct investment recorded an alarming decline in the third quarter of 2023, for the first time since 1998. Strategic investors fear an escalation of conflict between China and Taiwan with direct involvement of the USA, Japan, and their European allies.

According to data released by Tokyo, Japanese investors contributed only 2.2% of new investments made in China in 2023. Japanese investment is lower than Japanese investment in the economies of Vietnam, India and accounts for only 25% of Japanese investment in Australia.