Recently, negative news about the Chinese economy has been emerging one after another. Not only did foreign direct investment decrease by nearly $15 billion in the second quarter, but the Organization of the Petroleum Exporting Countries (OPEC) also lowered its forecast for global oil demand this year due to uncertainties in the Chinese economic outlook. Analysts believe that various indicators show that the Chinese economy is facing challenges, and there are concerns that both domestic and international situations in China may be affected.
According to a report from Agence France-Presse, on August 12, the OPEC released a report that slightly downgraded the forecast for global oil demand growth in 2024 by 135,000 barrels per day from the evaluation in July. This marks the first time since July 2023 that OPEC has reduced its forecast.
The report cited the worrying performance of the Chinese economy as the main reason for the downward revision, stating a “lower expectation for Chinese oil demand growth in 2024.” It also emphasized that current global demand growth remains at a healthy level of 2.1 million barrels per day.
Last Friday, Bloomberg reported, citing the latest international balance sheet from China’s State Administration of Foreign Exchange, that in the second quarter of this year, China’s foreign direct investment recorded a decrease of nearly $15 billion. This marks the second time in recorded history that this data has shown a negative value, with the outflow amount exceeding the $12.1 billion seen in the third quarter of last year.
This data highlights that foreign investors are significantly pulling out of China. If the negative foreign direct investment continues to decline for the rest of this year, it may set a historical record of the first “net outflow” since 1990.
The UK’s Financial Times recently reported that with the continued weakness in the Chinese economy, British advertising giant WPP saw a year-on-year decrease of nearly a quarter in sales in China over the past three months, while luxury carmaker Porsche stated that its sales in China in the first half of this year decreased by nearly a third.
Liu Mengjun, director of the Institute of Economic Research at the Chinese Academy of Social Sciences in Taipei, told Voice of America that one of the main reasons for the exodus of foreign investment is that the Chinese government is no longer encouraging economic stimulus through infrastructure. However, on the other hand, investments in so-called “new quality production forces” such as electric vehicles and green energy, which are actively promoted by the authorities, have fallen into a serious cycle of inefficiency and harmful competition.
According to Liu Mengjun, this kind of competition makes it difficult for foreign companies to adapt because most foreign enterprises are accustomed to complying with international rules, such as protecting workers’ rights and ensuring quality requirements, and cannot accept China’s unscrupulous price competition.
Additionally, against the backdrop of the US-China tech war, a series of technology controls and supply chain shifts have further discouraged foreign investment in the Chinese market.
Liu Mengjun analyzed that with the departure of foreign capital, coupled with the sluggish private investment and inadequate consumption momentum within China, the economy is solely supported by state-owned funds and foreign trade. China’s GDP growth rate in the second quarter has already fallen below 5%, making it “quite challenging” to achieve the government’s annual growth target of 5% if the slowdown continues in the third and fourth quarters.
The pessimism of the OPEC towards the Chinese economy also reflects China’s industries, especially in the chemical industry heavily reliant on oil, where investments are indeed sluggish.
The report quoted analysis from Chen Songxing, an adjunct professor at the Institute of National Development and Mainland China Studies at the Chinese Culture University in Taipei, saying that the main challenges China faces in attracting foreign investment come from geopolitical relations and industrial transfer.
Chen Songxing stated that the bleak figures in foreign direct investment actually include a part that continues to grow positively in “Greenfield Investment” in sectors like electric vehicles, lithium batteries, and solar cells actively promoted by the Chinese government, known as the “new three items.”
Nevertheless, the growth of such investments in the second quarter of this year has also declined, indicating that even in the eyes of foreign investors, the so-called “new quality production forces” in China are still considered too risky.
Furthermore, even countries such as Brazil, Indonesia, and Malaysia, known as “Global South countries,” have expressed concerns about Chinese exports of electric vehicles and new energy products, and may raise tariffs, possibly further weakening China’s third-quarter export expectations.
With the economy continuing to struggle, scholars are generally concerned that both domestic and international situations in China may be affected.
Professor Wong Kim Yong from the Department of Economics at Universiti Tunku Abdul Rahman in Malaysia analyzed that the weak Chinese economy will not only accelerate the overseas expansion of large Chinese enterprises but even many small and medium-sized enterprises will follow suit.
He said that this will make smaller Southeast Asian companies unable to compete, inevitably causing traditionally China-friendly Southeast Asian countries to rise in resistance, impacting China’s regional politics. On the other hand, the economic downturn will also lead to an increase in life pressures for ordinary people who are unable to go abroad, making it easier to ignite social conflicts.