Foreign direct investment in China hits a 30-year low amidst detentions for alleged spying and U.S. sanctions. Learn more about the reasons and implications
Foreign direct investment (FDI) in China has plummeted to a 30-year low, reaching $33 billion on a net basis in 2023, according to data released by the State Administration of Foreign Exchange.
This marks an 80% decrease from 2022 and a stark decline from the peak of $344 billion recorded in 2021, Nikkei Asia reported. The drop in FDI for the second consecutive year reflects a trend of foreign corporations divesting from China amid heightened concerns over espionage crackdowns and US sanctions, the Japanese financial newspaper said.
Chinese authorities have intensified efforts to safeguard national security, resulting in increased scrutiny of research firms and reports of foreign workers’ detainment. China has been trying to attract investment, personnel, and technologies from overseas through the “reform and opening up” policy initiated by Deng Xiaoping in the late 1970s, the report said. FDI is now at its lowest level since Deng advocated for accelerating this policy during a tour of southern China in 1992.
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Companies like Gallup have withdrawn from China, citing challenges in complying with revised anti-espionage laws implemented in July. This has hindered the ability of US and European firms to conduct thorough market research before investing, further discouraging new ventures. Japanese businesses have echoed similar apprehensions, with concerns mounting over uncertainties surrounding anti-spying legislation. Many Japanese firms have encountered obstacles in gaining approval for investment proposals from their headquarters due to perceived risks.
The shifting landscape has also impacted the semiconductor industry, with the US restricting China’s access to advanced chips. China’s share of global chip-related FDI plummeted from 48% in 2018 to a mere 1% in 2022, while American investments surged to 37%. This trend has prompted companies like Teradyne to relocate production facilities from China to Malaysia, while Britain’s Graphcore has downsized its operations in China.
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The Nikkei report said that automakers are also reassessing their strategies in light of increasing competition from Chinese counterparts. Mitsubishi Motors announced plans to cease auto production in China, while Toyota Motor and Honda Motor are reducing staff at their Chinese joint ventures. Moreover, China’s economic slowdown, exacerbated by weak domestic demand and a sluggish real estate market, has further deterred foreign investment.
Despite advancements in sectors like electric vehicles and surveillance technology, Chinese companies still rely on foreign expertise, particularly in areas such as advanced chip manufacturing. The Chinese government has taken steps to streamline regulations and attract investment. However, uncertainties persist regarding the implementation of national security policies and the broader economic outlook.
