Foreign investment China plummets to lowest level in 30 years
Foreign investors seem to be losing faith in China's economy. The amount of capital poured into the world's second largest economy plummeted a whopping 82 percent last year from the year before,
Bloomberg news agency reported, based on official Chinese figures. Foreign companies have not invested so little in China since 1993. It is another blow, after foreign investors' confidence in the Chinese market had previously been dealt a blow by the collapse of real estate giant Evergrande. Still, analysts are not surprised. "The market in China is not what it used to be," sums up Rabobank economist Teeuwe Mevissen. "China is no longer a real low-wage country. There are companies that are therefore diverting investments to Vietnam or India. In addition, foreign companies find that in China, despite all the promises, there is still hardly a level playing field. Homegrown companies are given preferential treatment. And then there are the geopolitical tensions."
By this, Mevissen is referring to the ever-increasing discord between China and Taiwan. China considers that country a renegade province. According to the figures, companies from the neighboring country, traditionally the largest in China, did not invest as little as last year since 2001. An escalation between the two countries is also feared far beyond Taiwan. "Companies are becoming wary. If war comes with Taiwan, will we run the same risks with sanctions against China, as happened in Russia after the invasion of Ukraine?" argues Mevissen. Economist Arjen van Dijkhuizen of ABN Amro also sees this: "The geopolitical situation determines how much risk companies are willing to take. Look at investments after the problems in Chinese real estate. Since Russia invaded neighboring Ukraine, they also start thinking differently about China."
Van Dijkhuizen additionally sees that interest rates play into considerations for investing in China. "In the West, central banks have raised interest rates enormously. You can earn more, so to speak, as a company by putting your money in the bank there than investing riskily in China. Of course, that can turn around when interest rates come down." That does not apply to other business in China, according to Van Dijkhuizen. "You see Western countries slowly decoupling from China. On the one hand because of supply problems such as during the corona pandemic and now again because of pirates in the Red Sea. On the other hand, there are the increased geopolitical risks. In case of an escalation in Taiwan, for example, such a decoupling could accelerate." Rabobank's Mevissen says that in the West, companies have set up a so-called "China+1 strategy. "Companies continue to keep their factories open in China, but invest in new ones elsewhere in the world or at home. The West wants to make more itself. Chips are an important example. But also consider the auto industry, solar panels and batteries. In the U.S., President Biden has adopted the China policy of his predecessor Trump. Europe has long tried to save the cabbage and the goat, but we have now lost that naiveté here as well."
Remarkably, the news of plummeting investment in China did not cause a major panic in the money markets, according to Mevissen, because the downward trend has been apparent for some time. "We are moving toward an increasingly fragmented global economy. Not for value-added goods, but certainly for high-value technology: chips, batteries, cars, artificial intelligence."
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