Amid the disappearance of Chinese President Xi Jinping during the Third Plenum meant to discuss economic policies, the economy of China has only worsened. In a rare event, China’s direct investment liabilities in its balance of payments dropped almost $15 billion in the April-June period, marking only the second time this figure has turned negative, according to data from the State Administration of Foreign Exchange released Friday(August 9th). It was down about $5 billion for the first six months.
Should the decline continue for the rest of the year, it would be the first annual net outflow since at least 1990.
© China’s State Administration of Foreign Exchange
This decline follows China’s record $344 billion in foreign investment in 2021. The slowdown in the economy, coupled with escalating geopolitical tensions with the West, has driven this shift. Additionally, the rapid transition to electric vehicles in China surprised many foreign automakers, leading some to withdraw or scale back their investments.
But the fall comes despite China’s effort to attract foreign investment by expanding the possible areas of investment. Despite China saying it’s open and wants to bring its advanced technology and resist the pressure from the US to decouple, it has failed miserably.
High Interest Rates Of The West And Low Intrest Rate Of China
Due to the West maintaining a high interest rate investors often choose to invest in the West as it offers higher returns. China due to its economic slowdown has maintained a low interest rate to keep the economy stimulated. If China raises its interest rate the ones to suffer will be the middle-class and low-income ones as prices will become too expensive. It’s already expensive that some of the well-off people have committed suicide, report.
Data from the Ministry of Commerce showed that new foreign direct investment into China during the first half of the year was the lowest since the start of the pandemic in 2020.
Rising Outbound Investment China
Chinese shares haven’t just had a bad start to 2024. It’s been rough going since February 2021, when they hit their most recent peak. It has approximately lost $6 trillion in 3 years.
It’s not just the foreign investors, even Chinese companies are looking to diversify it’s investments. The outbound investment also hit a record, with firms sending $71 billion overseas in the second quarter, up more than 80% from the $39 billion in the same period last year.
China has also brought policies that make it harder for the inverters to pull out their cash from China. the policies are there to encourage investors to reinvest it into the Chinese economy. But it was not successful as companies have kept pulling to their Cash and have not bought No new investments showing their Low Trust.
Also Read: Massive Explosion Rocks China
China is not only facing economic problems it also is facing severe flooding and drought destroying its agriculture production. These problems have only exhilarated the already declining Chinese economy.
Overall the Chinese future is looking bleak.
