{"id":89473,"date":"2024-01-28T19:47:47","date_gmt":"2024-01-29T00:47:47","guid":{"rendered":"https:\/\/ifintechworld.com\/?p=89473"},"modified":"2024-01-28T19:47:53","modified_gmt":"2024-01-29T00:47:53","slug":"china-is-experiencing-an-exodus-of-foreign-investment-and-talent-xi-jinping-is-getting-worried","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=89473","title":{"rendered":"China is experiencing an exodus of foreign investment and talent. Xi Jinping is getting worried."},"content":{"rendered":"
The signs of historically weak overseas investment in China are everywhere. And not just in the traditional sense of FDI \u2014 or foreign direct investment \u2014 inflows, though those are at record lows.<\/p>\n
Demand for Chinese goods is weak. Foreign companies continue to shift parts of their supply chains elsewhere. Even student exchanges and tourist visits are tumbling.<\/p>\n
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There are many reasons, but they circle back to two main ones: China\u2019s economy remains weak, and foreigners no longer feel safe in the country, financially or personally.<\/p>\n
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\n \u201c<\/span>Even the number of students going to China has cratered. More than 11,000 Americans studied in China in 2019. That number has fallen to a mere 350 this year, according to the U.S. Embassy in Beijing.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n
But, first, how bad is the foreign exodus exactly? The short answer: very bad.<\/p>\n
Last month, observers expected Beijing to announce weak inbound FDI numbers \u2014 but even the pessimists were shocked.<\/p>\n
Direct investment liabilities \u2014 a gauge of FDI that includes foreign businesses\u2019 retained earnings in China \u2014 hit an $11.8 billion deficit for the July-through-September period, according to the State Administration of Foreign Exchange. It was the first such quarterly deficit China has ever recorded.<\/p>\n
From the archives (October 2023):<\/strong> Chinese stocks have erased 4\u00bd years of gains as foreign investors flee at record pace<\/p>\n
Most analysts blamed \u201cde-risking,\u201d but additional factors made matters worse.<\/p>\n
\u201cForeign firms operating in China are not only declining to reinvest their earnings but \u2014 for the first time ever \u2014 they are large net sellers of their existing investments to Chinese companies and repatriating the funds,\u201d said Nicholas R. Lardy, a nonresident senior fellow at the Peterson Institute.<\/p>\n
As Goldman Sachs observed, \u201cWith interest rates in China \u2018lower for longer\u2019 [and] interest rates outside of China \u2018higher for longer,\u2019 capital outflow pressures are likely to persist.\u201d<\/p>\n
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\n \u201c<\/span>Listings of Chinese companies on U.S. markets have plummeted at nearly unbelievable levels.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n
U.S.-China tensions are partly to blame, making investors more cautious.<\/p>\n
But Beijing has also closed foreign consultancy and due-diligence firms, which are vital for potential investors and foreign companies to understand risk and other corporate and policy factors before making investment decisions.<\/p>\n
It didn\u2019t help that these crackdowns took the form of authorities raiding the China offices of multiple U.S. firms, including Mintz Group and Bain & Co., and detaining local staff.<\/p>\n
Chinese companies listed overseas also aren\u2019t raking in the level of stock purchases they used to.<\/p>\n
Offshore listings of Chinese companies in U.S. markets have plummeted at nearly unbelievable levels. In 2021, 34 Chinese initial public offerings in the U.S. raised $12.6 billion. Last year, that had nosedived to $468 million from 14 IPOs.<\/p>\n
See:<\/strong> Shein\u2019s IPO faces frosty reception in Washington<\/p>\n
Also:<\/strong> PDD\u2019s stock rockets as Temu parent crushes estimates, sees revenue nearly double<\/p>\n
The reasons include regulatory uncertainty and weak performances from Chinese companies at home.<\/p>\n
The Western chorus advising firms to \u201cde-risk\u201d their supply chains from China has grown all year. It got so bad that on Tuesday that Vice Premier Li Qiang struck back.<\/p>\n
\u201cWe are willing to build closer production and industrial supply-chain partnerships with all countries,\u201d Li told the first China International Supply Chain Expo, adding that foreign firms need to be \u201cmore wary of the challenges and risks brought about by protectionism and uncontrolled globalization.\u201d<\/p>\n
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<\/p>\n\n At this year\u2019s CIO Summit, U.S.-China Economic and Security Review Commissioner Jacob Helberg spoke with the WSJ\u2019s Christopher Mims about the relationship between China and the U.S. They talked about how a significant amount of the world\u2019s technology hardware is built in China. Photo: Florence Lo\/Reuters \n <\/figcaption><\/figure>\n<\/p><\/div>\n
Don\u2019t miss:<\/strong> How digitized supply chains can help cut waste and CO2<\/sub> emissions<\/p>\n
Also:<\/strong> White House claims credit for lower inflation as Biden convenes supply-chain council<\/p>\n
Even the number of students going to China has cratered. More than 11,000 Americans studied in China in 2019. That number has fallen to a mere 350 this year, according to the U.S. Embassy in Beijing.<\/p>\n
China is attempting to stanch these outflows \u2014 sometimes desperately.<\/p>\n
In August, China announced a 24-point plan to attract foreign investment and improve the country\u2019s business environment, particularly in key sectors, such as tech and biomedicine. China said it would \u201cexpand channels for foreign capital inflows\u201d for eligible foreign investors,\u201d but gave few concrete details.<\/p>\n
\u00a0As foreign investment continued to shrink, officials made more overtures.<\/p>\n
From the archives (June 2023):<\/strong> Foreign companies are shifting investment out of China, business group says<\/p>\n
Don\u2019t miss:<\/strong> India, Vietnam and Mexico are picking up the pieces of China\u2019s broken economy<\/p>\n
At the recent APEC summit in San Francisco, President Xi Jinping himself addressed the issue. \u201cWe will further shorten the negative list on foreign investment and fully ensure national treatment for foreign investors,\u201d he said.<\/p>\n
China will also improve policies to help foreigners\u2019 entry and stays in China, including removing barriers in financial, medical and digital payment services, he said, again without supplying many details.<\/p>\n
See:<\/strong> Apple\u2019s iPhone 15 still sees strong demand, especially in China, analyst says<\/p>\n
The problems are too big and China\u2019s remedies too small to make a substantial difference, said Peter Petri, a professor of international finance at Brandeis University.<\/p>\n
\u201cUncertainty about U.S.-China relations is the reason many U.S. companies are pulling out of China, and turning that around will take years of a generally positive environment,\u201d he said. \u201cNone of this will solve China\u2019s immediate short-term economic challenges.\u201d<\/p>\n
Tanner Brown covers China for MarketWatch and Barron\u2019s.<\/em><\/p>\n
More dispatches from Tanner Brown:<\/strong><\/p>\n
U.S. businesses operating in China are confused and worried. Here\u2019s why.<\/p>\n
China\u2019s property woes offer a window into the demise of the country\u2019s boom times<\/p>\n
Walmart keeps head above water in China as local supermarkets eat themselves alive<\/p>\n
China\u2019s economy is suffering, and consumers won\u2019t open their wallets \u2014 except to see movies<\/p>\n
China\u2019s youth job market is a nightmare. It\u2019s changing the face of the country.<\/p>\n<\/p><\/div>\n