The crackdown on foreign investment into China by the Communist Party, led by President Xi Jinping, continues to “pay off” with yet another unwanted record set over the first half of 2024.
The government announced this week that foreign direct investment (FDI) into China plunged 29.1% year-on-year to CNY 498.91 billion during January-June 2024 (around $69 billion USD). This is a larger fall than the 28% decline observed in the five months to May. Data shows it was a record fall for the first six months of a year and capped six months of similar readings.
In the three months to March, FDI fell 23% to just over $42 billion USD, a 23-year low, indicating the pace of the slide has accelerated.
A combination of sanctions against Russian and Iranian companies has cut Western investment in China, which remains an active trade partner of both countries.
Additionally, continuing fears of industrial espionage, law changes to protect Chinese economic and business data, and the crackdown on Chinese businesses, especially those investing in the US, have contributed to the decline.
Furthermore, there's the growing anti-Chinese stance of the US government, especially in the growth sectors of technologies such as computer chips, renewables, and electric vehicles.
Despite this, investment in these areas is still happening, though not at the pace seen in past years. In the first six months of this year, around 12.8% of the total, or CNY 63.75 billion, went into high-tech manufacturing industries in China, up 2.4 percentage points from the same period last year. Foreign investment in medical equipment and instrument manufacturing, and professional technical services increased by 87.5% and 43.4%, respectively, though from low bases.
The major sources of FDI were Germany (18.1%) and Singapore (10.5%), where the government’s wealth fund has been buying the Chinese operations of foreign investors who are leaving the country.
