(Bloomberg) — Foreign investors pulled a record amount of money out of China last quarter, likely reflecting deep pessimism about the world’s second-largest economy.
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China’s direct investment liabilities on the balance of payments fell by almost $15 billion in the April-June period. This is only the second time that figure has turned negative, according to data from the State Administration of Foreign Exchange released Friday. It fell by about $5 billion in the first six months.
Should the decline continue for the rest of the year, it would be the first annual net outflow since at least 1990, when comparable data begin.
Foreign investment in China has fallen in recent years after reaching a record $344 billion in 2021. The slowdown in the economy and rising geopolitical tensions have led some companies to reduce their exposure, and the rapid shift to electric vehicles in China has also hit foreign auto companies. overwhelmed, causing some to withdraw or scale back their investments.
The decline comes despite Beijing’s increasing efforts to attract and retain foreign investment, following the smallest increase on record last year. The government wants to show that it remains open and attractive to foreign companies, hoping that companies will introduce advanced technologies and resist pressure from the US and elsewhere to decouple from China.
SAFE’s data, which tracks net flows, can reflect trends in foreign companies’ profits as well as changes in the size of their operations in China. Multinationals have more reasons to hold cash abroad than in China because advanced economies have raised interest rates while Beijing lowers them to stimulate the economy.
Earlier figures from the Ministry of Commerce showed that new foreign direct investment in China in the first half of the year was the lowest since the pandemic began in 2020.
Increasing outward investments
Chinese outbound investment also reached a record: companies sent $71 billion abroad in the second quarter, more than 80% more than the $39 billion in the same period last year.
Chinese companies have quickly ramped up investment, pouring money into projects such as electric vehicle and battery factories.
The data also showed that the anomaly in the measurement of China’s trade surplus continues to grow, reaching a record $87 billion in the second quarter and reaching almost $150 billion in the first half of the year. This gap was highlighted by the US Treasury Department in a report earlier this year that called on China to clarify why the figures were so different.
According to a recent report from the International Monetary Fund, this discrepancy “appears to be mainly caused by the different methods used to record the export and import of goods.”
The gap widened after a switch two years ago in the data used by Chinese authorities, and was also widened by a recent increase in production in bonded zones by foreign companies.
(Updates with details on Chinese investments, trade balance)
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