Foreign investors withdrew a record amount of capital from China in the second quarter of 2024, underscoring deepening concerns about the health of the world’s second-largest economy. Data released by China’s State Administration of Foreign Exchange (SAFE) on August 9 revealed that China’s direct investment liabilities fell by nearly US$15 billion (S$19.9 billion) from April to June. This marked only the second instance of a negative balance in this category since records began, and follows a decline of about US$5 billion in the first half of the year according to a Bloomberg report.
If this trend persists through the remainder of 2024, it could mark the first annual net outflow of foreign investment from China since at least 1990, when comparable data first became available.
The pullback in foreign investment comes as China grapples with a slowdown in economic growth and escalating geopolitical tensions, leading some multinational corporations to reconsider their exposure in the country. The rapid shift toward electric vehicles within China has also caught some foreign carmakers off guard, prompting a retreat or reduction in investments. This downturn follows a high point in 2021 when foreign investment into China hit a record US$344 billion.
Despite Beijing’s increasing efforts to attract and retain foreign capital, including a push to showcase China as an open and appealing destination for international businesses, the smallest increase on record in foreign investment was recorded in 2023. The government has been keen to demonstrate that the country remains a viable environment for foreign businesses, hoping to draw advanced technologies while resisting external pressures, particularly from the United States, to decouple from China.
SAFE’s data also sheds light on broader economic trends, reflecting not only the repatriation of profits by foreign companies but also adjustments in the scale of their operations within China. The disparity in interest rate policies—where advanced economies have been raising rates while Beijing has lowered them to stimulate growth—provides multinationals with further incentives to keep cash abroad rather than in China.
Earlier reports from China’s Ministry of Commerce highlighted that new foreign direct investment in the first half of 2024 was the lowest since the onset of the COVID-19 pandemic in 2020. Meanwhile, Chinese companies have been increasingly investing abroad, with outbound investments hitting a record US$71 billion in the second quarter—a more than 80 percent increase compared to the same period in 2023. Much of this capital is being directed toward projects such as electric vehicle and battery manufacturing facilities.
Additionally, the data revealed a growing anomaly in China’s trade surplus measurement, which reached a record US$87 billion in the second quarter and totaled nearly US$150 billion for the first half of 2024. This discrepancy, highlighted by the U.S. Treasury earlier in 2024, has been attributed by the International Monetary Fund to differing methodologies in recording exports and imports of goods.
