As China's foreign direct investment falls, is its charm campaign paying dividends or falling on deaf ears?
Despite Beijing actively wooing overseas investors as part of its post-pandemic economic recovery, China's foreign direct investment (FDI) shrank in the first four months of the year.
The country's actual utilisation of FDI reached US$73.5 billion in the January-April period, dropping by 3.3 per cent from a year earlier, according to data from the Ministry of Commerce on Wednesday.
The figures suggest that Beijing has still lots of work to lure foreign investors, who play vital roles in terms of China's access to technology, funds and management expertise, especially as tensions with the United States persist and as Beijing's raids on finance and due-diligence firms in the name of national security have raised concerns in the investor community.
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China received US$39.71 billion worth of investments in the first two months of 2023, showing a 1 per cent year-on-year increase. The ministry, though, did not provide FDI figures in US dollar terms for the first quarter.
In yuan terms, China's actual FDI grew by 4.9 per cent to 408.45 billion yuan (US$58 billion) in the first quarter of 2023, while foreign investments from January to February was 264.88 billion yuan, representing a 6.1 per cent increase, year on year.
The actual use of foreign investment measures the amount of money that China has already received when carrying out a contract with foreign companies, and the figure is released by the Ministry of Commerce every month as an indicator of FDI.
The slowing momentum comes as China's industrial output and retail sales growth in April undershot forecasts.
Both the onshore and offshore yuan also weakened past 7 per US dollar this week for the first time in five months.
For the first four months of the year, foreign capital flow into the high-end manufacturing industry surged by 37.1 per cent, year on year, while investments in high-end technology services rose by 6 per cent from the previous year.
Investments from France grew nearly sixfold from the same period last year, while FDI from the United States more than tripled, year on year, according to the ministry.
China's recent raids on Bain & Company and Capvision have set off alarms among foreign investors about intensifying law enforcement.
The investigations "send a worrying signal and heighten the uncertainty felt by foreign companies operating in China", said the European Union Chamber of Commerce in China.
The American Chamber of Commerce in Shanghai also called on authorities to "more clearly delineate" which areas of due diligence were permissible, saying such crackdowns were "not conducive to restoring business confidence and attracting foreign investment".
Despite the investigations, China has ramped up efforts to attract investment this year, with a series of international events, forums and expos.
Local governments are also pushing full steam ahead, with Shanghai pledging a one-time cash award to new FDI projects and foreign investors who reinvest their profits in the city.
In April, China's top economic planning body said it would consider "appropriately shortening" the "negative list" that delineates which industries are prohibited or restricted to foreign investors, in a bid to open up and attract more overseas capital to boost the nation's economic recovery.
Meng Wei, a spokeswoman for the National Development and Reform Commission, said the body was considering allowing foreign investment in key sectors such as advanced manufacturing, modern services and environmental protection, and in economically important regions such as central, western and northeastern China.
This article originally appeared on the South China Morning Post (SCMP).
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