The Chinese Communist authorities announced on Friday (June 21) that the indicator measuring Foreign Direct Investment (FDI), the “actual use of foreign capital amount,” has been declining for 12 consecutive months, highlighting the challenges China faces in increasing attractiveness to overseas investors.
According to data released by the Chinese Ministry of Commerce on Friday, from January to May 2024, China’s “actual use of foreign capital amount” decreased by 28.2% year-on-year to 412.51 billion RMB (56.8 billion USD).
Bloomberg reported that the latest data on foreign direct investment released by China continues the trend of continuous decline since June 2023.
From January to April this year, China’s actual use of foreign capital was 360.2 billion RMB, down 27.9% year-on-year; from January to March, the actual use of foreign capital was 301.67 billion RMB, down 26.1% year-on-year.
Due to the unstable business environment in China and dim economic growth prospects, there has been a historic decline in foreign capital inflows. The Chinese Communist Party has been seeking ways to enhance foreign investors’ confidence in investing in China, but foreign business leaders criticize the Party for saying one thing and doing another.
Chairman of the China-EU Chamber of Commerce, Jens Eskelund, warned the Chinese Communist Party in August last year that there was a phenomenon of “commitment fatigue” among foreign companies in China. He stated at the time that the China-EU Chamber of Commerce had not seen any signs of the Chinese government willing to implement structural reforms to address the fundamental challenges facing the Chinese economy and allow foreign and private enterprises to support China’s economic potential.
In March, the Chinese government promised to make it easier for foreign investors to enter the manufacturing sector. But Sean Stein, Chairman of the China-U.S. Chamber of Commerce, emphasized that the key is China’s actions. He stated that while such announcements are encouraging, “(the Party’s) announcements will not drive the market, and commitments will not drive investment.” “As always, the key is comprehensive and timely implementation,” he said.
During her visit to China in 2023, U.S. Secretary of Commerce Gina Raimondo stated that American companies told her that China is “not suitable for investment because the risks are too high.”
The continued decline in foreign direct investment indicates that China is becoming less attractive to foreign investors. Although foreign companies have not completely withdrawn their investments in China, the number has been decreasing.
The Chinese government continues to do things that exacerbate concerns among foreign companies in China. In 2023, the Chinese authorities raided the Chinese offices of foreign companies such as Bain & Company and the Mintz Group. The Chinese government also approved a revised version of the vague “Counter-Espionage Law,” greatly expanding the categories of activities considered espionage. Regarding this law, the Financial Times commented that this effectively means that anything deemed suspicious by the Communist Party can be defined as potential espionage activities, triggering official searches, seizures, and imprisonment of individuals.