China on Tuesday (November 7) reported a negative foreign direct investment (FDI) flow in the July-September quarter for the first time since 1998. This unprecedented occurrence highlights the growing trend of foreign companies withdrawing investments from the country, driven by escalating geopolitical tensions and more attractive interest rates in other regions.

Share Market Live

NSE

While China's state media maintains a positive outlook, stressing its continued significance as a global FDI destination, the persistent decline in FDI could present fresh opportunities for emerging market economies, particularly India.

During the third quarter, China saw a decline of $11.8 billion in its direct investment liabilities within its balance of payments, according to the country's foreign exchange administration. This measure accounts for financial flows associated with foreign-owned entities operating within China.

In essence, this data signifies that the FDI inflow into China was lower than the outflow. Many experts view this as a manifestation of the deteriorating sentiment among global firms regarding the business and investment environment in China, driven by greater state intervention in the domestic economy and escalating geopolitical tensions with advanced countries, especially the United States.

Economists have pointed out that this decline in FDI, as indicated by the balance of payments measure, reflects foreign companies' reduced willingness to reinvest their profits within China.

China's official media, however, attempted to downplay the numbers, characterising them as a reflection of global economic turbulence. In a report dated November 2, Xinhua stated, “FDI fluctuations are not uncommon for any country. It should be noted that the global environment for international business and cross-border investment remains challenging, and downward pressure on global FDI is expected to continue this year after a 12% decline last year.”

“China remains one of the most attractive destinations for global investors thanks to its consistent opening-up drive bolstered by favourable policies,” it added.