Image Source: CFA Institute Blogs
There has been a steady decline in investment in China since 2020.
As they say, everything has to see its downturn after reaching its peak, and this is what exactly the status quo of investment in China is. As New York Times reported in September last year European interest in China investment has waned, and this trend has gained popularity in the last few years. Tech companies are now looking for potential alternatives like India, Vietnam, and other Southeast nations.
The term China plus one has become more popular nowadays & many southeast nations are hoping for greater investment on their side. The survey shows that at least nine firms moved more than 30% of their manufacturing out of China. For instance, Samsung moves its Chinese manufacturing to Vietnam, and Hasbro an American conglomerate has shifted its Chinese production to India and Vietnam. Foxconn, Nike, Adidas, and many other companies are following the same way.
According to one estimate between January and March 2022, foreign investors had withdrawn a whopping $150 billion from investments made in Chinese currency. Various reasons led to this downturn in investment in China.
The Crackdown of Businesses in China
E-commerce giant Alibaba and social media and video company Tencent, both have faced various fines for failure to comply with anti-monopoly transaction disclosure laws. The timing was very interesting though the crackdown came when these two giant companies were in their peak stage.
Didi, a popular ride-hailing company In China faced its app suspension amid a suspected violation of cybersecurity. In May 2022 Didi delisted its share from the New York Stock Exchange to satisfy the demand of the Chinese government. This undesirable trend has created fear in foreign investors.
Declining demographic dividend
Chinese working-age population is shrinking. According to one estimate by United Nations in July 2022 China’s working-age population aged between 15 and 64, will start declining rapidly and will shrink by more than 60% by the end of the century. China’s cheap labour market and its working-age population have been its main driver in attracting foreign investment. But this very fact is not factual anymore. This declining trend in demographic dividends has increased apprehension in foreign players for their investment in the Chinese market.
China’s strict zero covid policy is at the fore of this policy-induced crisis. Although it’s a short-term problem it had a massive impact on Chinese foreign investment. The situation was so grim that it had prompted about a quarter of firms to consider diverging their investment out of China. To exacerbate the situation China’s property crises took a huge toll on its investment. This property crisis was resultant of China’s calculated policy decisions.
China has been in the trade war with many countries. It’s five years now when China -America trade war began in 2018 after America had significantly increased tariffs on Chinese goods under what they called its Protectionist policy. Though it’s a matter of the past now, it has deteriorated the Chinese image in the world market.
On the other hand, China has been in a tussle with Australia and its ongoing trade war. Most recently it has had a trade dispute with Lithuania. Since 2021 China has imposed coercive measures against Lithuanian export and EU products containing Lithuanian content. Trade disputes like this make foreign investors sceptical about the Chinese market.
These trends of foreign investors losing their interest in the Chinese market will have very bad implications for the Chinese economy, which will inevitably hinder the Chinese dream of becoming an economic superpower. It’s now interesting to see what measures China will take to tackle this issue.