Recently, China saw a record high net outflow of foreign direct investment (FDI) last month. The Chinese Communist government launched the “Stabilizing Foreign Investment” action plan, claiming to expand and encourage foreign investment in various industries. Experts believe that this emergency plan largely overlaps with past policies, essentially rendering previous measures ineffective and failing to address the core issues, making it difficult to reverse the continued outflow of foreign investment.
According to the Chinese Ministry of Commerce, as of January 2025, China’s actual use of foreign investment amounted to 97.59 billion yuan, a 13.4% decrease compared to the same period last year. This figure was also lower than the 102.2 billion yuan in January 2022 and 127.6 billion yuan in January 2023, making it the worst start in the past four years.
Additionally, in 2024, China’s actual use of foreign investment was 826 billion yuan, a 27.1% year-on-year decrease, the lowest level since 2016. Bloomberg cited data from China’s State Administration of Foreign Exchange, estimating that China’s net outflow of foreign direct investment reached a record high of 1.2277 trillion yuan (approximately 168.4 billion US dollars) in 2024.
On February 19th, the Chinese Ministry of Commerce and the National Development and Reform Commission issued the “2025 Stabilizing Foreign Investment Action Plan.” According to China Central Television, the plan includes 20 specific measures across four aspects, such as orderly expanding autonomous openness, enhancing investment promotion levels, and opening pilot programs in sectors like telecommunications, healthcare, and education. Specific measures include increasing support for reinvestment by foreign enterprises domestically, expanding the scope of industries open to foreign investment, encouraging more foreign investment in the central and western regions as well as the northeast region, allowing foreign investment companies to use domestic loans for equity investments, promoting multinational companies to establish investment companies, and facilitating foreign investors to carry out mergers and acquisitions in China.
American economist David Huang told the Epoch Times that the 20-point stabilization plan is a typical emergency measure, akin to treating a headache for a headache and addressing symptoms without tackling the real concerns of foreign investors. Therefore, it is challenging to reverse the trend of continuous outflow of foreign investment and restore global investors’ confidence in the Chinese market.
He explained that while the 20 points cover various areas like telecommunications, healthcare, and education, the core issue remains market access and normal convenience. The market should inherently be easy to enter and provide policy convenience, which should not be commendable. Furthermore, there is no mention of improving the rule of law transparency, capital flow freedom, further enhancement of the business environment, and reducing government interference. Failure to address these significant issues suggests that the previous efforts to encourage foreign investment were merely talk.
Professor Xie Tian from the University of South Carolina’s Aiken School of Business stated that China’s current move with this plan comes too late, and some data may be inflated by the Chinese Communist Party (CCP) resulting in false information regarding the actual decline in the utilization of foreign investment.
He believed that the CCP’s plan was primarily a response to the imminent trade war and tariff battles with U.S. President Trump. Foreign capital that can exit China is doing so, and some funds that cannot leave are being withdrawn, indicating that the rapid rollout of so many measures by the CCP reflects the critical situation where foreign capital outflow has reached a level that greatly concerns the CCP.
Both Huang and Xie agreed that over the years, the CCP has been calling for financial stability and foreign investment. However, the lack of substantive innovation in the 20-point stabilization plan indicates significant overlap with previous policies, implying that the previous efforts to attract foreign investment were merely rhetoric.
Chi Hung Kwan, a senior researcher at Nomura Capital Market Research Institute in Japan, pointed out that the reasons for the departure of foreign companies from China are due to changes in the investment environment, citing seven main factors: escalating US-China tensions, slowdown in China’s economic growth, rising production costs in China, the CCP’s tightening security regulations, intense competition among local Chinese companies, restructuring of global supply chains, and rising anti-foreign sentiments in China.
Xie Tian stated that the reasons for foreign capital withdrawal include concerns over China’s economic downturn, which may soon enter a recession with no immediate recovery prospects. Furthermore, the CCP has implemented a series of policies hostile to private and foreign enterprises to maintain its power. Xi Jinping recently met with private entrepreneurs, seeking their help in revitalizing the Chinese economy, but simultaneously cautioned them that the central party decisions must be implemented. This pressure from the CCP, even when seeking assistance, deters foreign capital from remaining in China.
David Huang added that the withdrawal of foreign capital also involves geopolitics, such as tensions in the Taiwan Strait and South China Sea. Beijing’s greater problem lies in the uncertainty of legal and rule of law policies, frequent policy changes, and excessive restrictions on profit repatriation and cross-border fund flows, which remain unresolved.
The business environment in China has long been criticized by foreign companies, including concerns about the increasingly stringent anti-espionage activities by the CCP.
To mask these issues, official Chinese agencies have released reports claiming satisfaction with the business environment. For example, the China Council for the Promotion of International Trade reported that surveyed companies rated the business environment in China for 2024 as 4.37 out of 5. They claimed that nearly 90% of the surveyed companies were either “very satisfied” or “somewhat satisfied” with the business environment in China, with over 60% optimistic about China’s future prospects.
However, a recent survey by the American Chamber of Commerce in Shanghai revealed that over 50% of respondents held a pessimistic view on the future business prospects in China for the next five years. The European Union Chamber of Commerce also criticized the increasingly politicized business environment in China, stating that numerous suggestions by enterprises were largely ignored.
David Huang noted that not only foreign capital but also Chinese private enterprises and ordinary citizens are becoming disillusioned with the domestic situation.
Shortly after taking office, U.S. President Trump imposed a 10% tariff on Chinese goods, as well as a 25% tariff on steel and aluminum products, along with exploring corrective tariff measures for trade imbalances. As the U.S. and China entered a new round of trade wars, the implementation of Trump’s measures is expected to accelerate the trend of companies relocating abroad.
Huang stated that the global economy is entering a high-interest rate cycle with a continuous influx of the U.S. dollar, indicating that investors are increasingly inclined to repatriate to the United States due to higher interest rates, security, and robust legal frameworks. Despite China’s apparent economic slowdown, the actual situation indicates regression with a sluggish stock market, a sluggish property market, and diminishing economic vitality of private enterprises. The decline in market dynamism is becoming an irreversible trend given the CCP’s gilded surface but aggressive demeanor in external affairs.