Investment into China slumped in the final two months of last year by the most on record as the government made its chaotic exit from Covid Zero and infections spread across the country.
(Bloomberg) — Investment into China slumped in the final two months of last year by the most on record as the government made its chaotic exit from Covid Zero and infections spread across the country.Â
The 76.6 billion yuan ($11.3 billion) in actually utilized new foreign direct investment in December was almost 29% lower than the same period a year earlier, according to Bloomberg calculations based on data from the Ministry of Commerce. That followed a 33% drop in November, the largest fall in data going back to 2015.Â
The slumps were even worse than the drop-off in investment seen in early 2020, when the pandemic began. FDI fell nearly 26% year-on-year that February as Wuhan went into lockdown.
For all of 2022, investment rose 6.3% to a record 1.2 trillion yuan, although there was no breakdown available yet for the source of those funds. However, if the pattern from 2020 and 2021 holds, more than 70% is likely from Hong Kong — either from local investors, or from mainland Chinese or foreign investors routing their money via the city.
Foreign businesses became increasingly pessimistic about the Chinese market last year as Covid Zero lockdowns and restrictions undermined the economy and made living in China or doing business and trade with the country much harder.Â
Many foreign businesspeople and investors have been unable to travel to China to inspect their businesses or consider new ones for the past three years. Even now that Covid Zero is over, it’s not clear how quickly people will return given the rapid spread of infections, along with the lack of clear data on illnesses and deaths.
Companies in at least some countries seem to be wary of boosting investment. Overall, Japanese firms are taking their money out of China, with the net flow of FDI falling 4% in the first 11 months of 2022 compared to the same period in 2021, Japanese government data showed. Japanese investment into Hong Kong was down 65% over the same period.Â
There are some exceptions, such as Panasonic Holdings Corp. But the broader trend has been underscored by comments from the government in Tokyo, which has encouraged companies to reduce their dependence on China — a significant development, given that Japan is the largest single investor in China after Hong Kong, with a stock of $123 billion invested in the country at the end of 2021, according to Chinese data.
Chinese officials, meanwhile, have said repeatedly in recent months that they’re working to attract more investment — especially into high-tech manufacturing. An official from the economic planning agency said Wednesday that the government will remove unjustified restrictions, and will make greater efforts to attract and use foreign investment.
Chinese cities and provinces have already started visiting Japan in the month since the end of the Covid Zero policy to drum up investment. The deputy mayor of Tianjin and the Chinese ambassador both spoke Monday in Tokyo at an event to promote the city to Japanese investors.
However, political tensions and bilateral disputes may make that difficult. Just after China announced it was reopening its borders, it said it would stop processing short-term visa applications from Japan and South Korea after those nations said people coming from China would have to get tested for Covid.
Although the Chinese government reportedly soon backed down and began quietly accepting some business travelers from those nations, relations remain tense.
Financial investors were also negative on China last year, with foreigners selling a net 610 billion yuan of Chinese interbank bonds in 2022, data released this week showed. However, the reopening of the Chinese economy and borders does seem to be encouraging some new investment, with foreign stock investors being net buyers via the northbound stock connect so far this month. Â Â Â
–With assistance from Erica Yokoyama and Helen Sun.
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