(Bloomberg) — Foreign investors pulled a record amount of money out of China last quarter, likely reflecting deep pessimism about the world’s second-largest economy.
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China’s direct investment liabilities on the balance of payments fell by nearly $15 billion in the April-June period, only the second time the figure has been negative, according to data from the State Administration of Foreign Exchange released Friday. It was down about $5 billion for the first six months.
If the decline continues for the rest of the year, it would be the first annual net outflow since at least 1990, when comparable data became available.
Foreign investment in China has declined in recent years after reaching a record $344 billion in 2021. The slowing economy and rising geopolitical tensions have led some companies to reduce their exposure, and China’s rapid adoption of electric vehicles has also caught foreign auto companies by surprise, leading some to withdraw or scale back their investments.
The decline comes despite Beijing’s growing efforts to attract and retain foreign investment, after the smallest increase ever last year. The government wants to show it remains open and attractive to foreign companies, hoping that firms will bring in advanced technologies and resist pressure from the U.S. and elsewhere to decouple from China.
The SAFE data, which tracks net flows, can reflect trends in profits at foreign companies as well as changes in the size of their operations in China. Multinationals have more reason to keep cash abroad than in China, as advanced economies have raised interest rates while Beijing cuts them to stimulate the economy.
Earlier figures from the Ministry of Commerce showed that new foreign direct investment in China in the first half of the year reached the lowest level since the start of the pandemic in 2020.
Rising outward investments
Chinese investment abroad also hit a record high, with companies investing $71 billion overseas in the second quarter, up more than 80% from $39 billion in the same period last year.
Chinese companies are rapidly increasing their investment, with money going to projects such as electric vehicle and battery factories.
The data also showed that the anomaly in China’s measurement of its trade surplus continues to grow, with a record $87 billion in the second quarter and nearly $150 billion for the first half of the year. That gap was highlighted earlier this year by the U.S. Treasury Department in a report calling on China to explain why the numbers were so different.
According to a recent report from the International Monetary Fund, this discrepancy “appears to be caused primarily by the different methodologies used to record exports and imports of goods.”
The gap has widened since Chinese authorities switched to different data two years ago, and has also widened due to a recent increase in bonded zone production by foreign companies.
(Updates with details on Chinese investments, trade balance)
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