Foreign companies invested significantly less in China in 2023 than in the previous year. One of the reasons is the de-risking strategy of Western countries, another is the poor economy in China.
Poor economic activity, high credit costs and the political goal of de-risking: In 2023, foreign companies invested less in China for the first time in more than a decade. Their direct investments totaled just 1.13 trillion yuan (146 billion euros), as the Ministry of Commerce in Beijing announced. This corresponds to a decrease of 8.0 percent compared to the previous year.
This is the first minus since 2012, even if the development does not come as a complete surprise: many Western governments are encouraging companies not to put everything on China’s cards, but rather to diversify investments more widely. Instead, investments are increasingly being made in emerging countries that are more friendly towards the West – such as India. This strategy is also called de-risking.
In addition, China’s economy is no longer running smoothly. The real estate crisis in particular is putting a strain on growth, which has recently been significantly lower than before the corona pandemic. Experts therefore expect that the decline in investments will continue. “It will get even worse in 2024,” said Alicia Garcia Herrero, chief economist for the Asia-Pacific region at the financial firm Natixis: “I think that foreign direct investment will continue to fall.”
Chinese economy is open for business
Premier Li Qiang stressed at the World Economic Forum this week that the Chinese economy is open for business. He highlighted the potential for foreign investment. But President Xi Jinping’s increasing focus on national security – particularly the recent crackdown on consulting firms – has unsettled many foreign companies.
They also fear that the Taiwan conflict could escalate and result in Western sanctions – similar to those against Russia after the attack on Ukraine. Borrowing costs for multinational companies also rose last year as a result of interest rate increases by the US Federal Reserve, for example. As a result, parents of Chinese subsidiaries have been reluctant to increase their investments, analysts said, another reason for the decline.