11/09/2023, 11.38
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Beijing: foreign direct investment deficit, clouds over the future of businesses

by John Ai

For the first time since 1998, the figure has fallen, while the capital outflow linked to the de-risking strategy adopted by Washington and Brussels continues. Business uncertainty persists, some international companies withdraw from the Chinese market. There is criticism of the China International Import Expo, which is regarded as a 'political showcase' and is declining in trade.

Beijing (AsiaNews) - China recorded its first deficit in the foreign direct investment sector in the third quarter, linked to the de-risking strategy of the governments of European countries and the United States, which led to the outflow of capital from China. Preliminary official balance of payments data showed that direct investment liabilities - a key figure for foreign investment, which also includes retained earnings in China - reached US.8 billion.

Meanwhile, official statistics showed China's exports slumped 6.4 percent in October, the sixth consecutive monthly decline. Exports are expected to remain weak in the coming months due to the economic slowdown in Europe and America.

The investment bank Goldman Sachs has estimated that the pressure of capital outflow is destined to persist, due to the repatriation of profits by multinationals present in the area. Furthermore, interest rates outside of China are rising in the long run, while interest rates in China are - prospectively - falling. China's foreign exchange regulator has been compiling passive direct investment data since 1998. At the same time, Beijing reported a deficit of .2 billion in the basic account, the second consecutive quarterly deficit.

Official data showed that onshore trading of the Chinese yuan against the US dollar hit a record low in October, down 73% from the August level. According to analysts, Chinese authorities will limit sales of local currency to support the exchange rate. There is a shared opinion among industry experts that foreign companies will continue to maintain their presence in China; however, the country's ability to attract foreign direct investments will be hindered by geopolitical tensions, while some emerging markets are more favorable and advantaged from this perspective.

The controversial National Security Law adds further uncertainty for foreign companies due to the lack of clarity in the rules. Earlier this year, US management consultancies Bain & Company and Mintz Group were investigated by Chinese authorities for security issues. And, more recently, the analysis and consultancy firm Gallup - famous for its opinion polls - decided to close its offices in the Land of the Dragon.

In March, a survey conducted by the company in the United States showed that only 15% of Americans view China favorably, while 77% favor or agree with Taiwan. The result of the survey aroused discontent in Beijing and the official newspaper Global Times said that the outcome of the research was used as a tool to defame China.

Asset management firm Vanguard Group has also decided to leave, with team members planning to leave China within the next year. Vanguard also sold shares in its joint venture with Chinese fin-tech giant Ant Group. And several international consultancies are planning to reduce employees in China.

Shanghai, flop at import fair

The China International Import Expo (CIIE) is underway in Shanghai this week. According to critical voices, the commercial value of the exhibition is decreasing. The European Union Chamber of Commerce in China called the event “a political showcase.” Carlo D'Andrea, vice president of the Chamber, said in a media briefing on November 3 that "it's more of a government affairs, marketing event and there was very little talk about business."

This year it was Chinese Prime Minister Li Qiang who announced the official opening of the CIIE. A significant fact, because it is the first time that President Xi Jinping does not give the speech at the opening ceremony of the exhibition.

A survey conducted by the Chamber last month showed that its members' participation rate had dropped from 42% to 32% since the first exposure. Although 59% of businesses surveyed said they benefited from the government's involvement at the expo, last year only a quarter of attendees transacted business at the expo. A very different figure even from 2018 when around half of the participants had concluded agreements at the fair. Most of the participants are large companies, also because the presence of small and medium-sized enterprises is hindered - if not blocked - by the high costs of participation and logistics.

Chinese leader Xi Jinping launched the fair in Shanghai in 2018 to respond to criticism of the massive trade surplus, as former US President Trump began a trade war with China. At the time, Beijing promised to import more products and services and give greater access to foreign companies. In reality, five years later, the EU's trade deficit with China is still increasing. And more and more foreign companies are complaining about China's overly politicized business environment.

Nonetheless, for the 2023 edition the United States set up an exhibition pavilion at the Expo for the first time. In the context of tensions between the two powers, US Ambassador to China Nicholas Burns inaugurated the pavilion and promised to promote trade between the parties, not decoupling (essentially, relocating the production of American companies outside of China into sectors considered strategic).

According to what was reported by the official Chinese media, this year half of the companies in the Fortune Global 500 are participating in the China International Import Expo. Among these, there is also the American semiconductor manufacturer Micron. Beijing authorities have excluded the company from the telecommunications infrastructure network for national security reasons.


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