China’s first quarterly deficit in foreign investment…rapprochement with the West in full swing

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In a meeting with Anthony Albanese, the Australian Prime Minister, with whom China has had conflicts in economic and security issues, President Xi Jinping of China encouraged investment in China, stating, “China’s development still has a solid foundation and various favorable conditions.” This comes as China’s foreign investment capital showed a net outflow for the first time in the third quarter of this year, indicating China’s efforts to stop the ‘decoupling’ trend of foreign capital.

According to China’s preliminary international balance of payments released on November 3, one of the indicators measuring China’s Foreign Direct Investment (FDI), the direct investment liability, recorded a deficit of $11.8 billion in the third quarter. This is the first time a quarterly deficit has been recorded since China’s foreign exchange authority began compiling related data in 1998.

It appears that foreign companies, which used to reinvest the money they earned in China back into China, are now repatriating their investment profits as the de-risking of China by the West, including the United States, intensifies. Goldman Sachs explained the decrease in FDI as “multinational companies are remitting (profits earned from investment in China) back to their home countries.”

The fact that China continues to maintain low interest rates while most countries are implementing high interest rate policies is also encouraging the outflow of capital from China.

Julian Evans-Pritchard, senior economist at Capital Economics, said, “I don’t think there’s much evidence that foreign companies are reducing their operations in China,” but added, “At least in the medium term, as geopolitical tensions rise, a preference for more Western-friendly emerging markets will emerge, and China’s ability to attract FDI will inevitably decline.”

As the economic slowdown and capital outflow intensify, China is making all-out efforts to improve relations with Australia and the U.S., which have been deteriorating, to protect foreign capital.

According to China’s state-run Xinhua News Agency on November 6, President Xi held a summit with Prime Minister Albanese at the Great Hall of the People in Beijing that afternoon.

At the meeting, President Xi emphasized, “As the world economy becomes unstable, uncertain, and unpredictable, each country’s economy is facing not a few challenges,” and “The Chinese economy is holding up well in a complex external environment, maintaining its scale while continuing qualitative growth.”

He also said, “China’s development still has a solid foundation and various favorable conditions,” and “China will bring precious certainty to the uncertain world economy through stable development.” He added, “China’s development cannot be separated from the world, and the world’s development needs China.”

The improvement in relations between the two countries is gaining momentum as Prime Minister Albanese is visiting China for the first time in seven years as the Australian Prime Minister. Albanese attended the 6th China International Import Expo in Shanghai the day before and is scheduled to return home on November 7.

In the meantime, there is a high likelihood of a summit between President Xi and U.S. President Joe Biden next week on the occasion of the Asia-Pacific Economic Cooperation (APEC) summit, and Hu Chunhua, who is known as President Xi’s economic advisor and is a member of the Central Politburo of the Communist Party of China and Vice Premier of the State Council, is visiting the U.S. this week.

Wang Wenbin, spokesperson for the Ministry of Foreign Affairs, announced on the Ministry’s official website that Vice Premier Hu will visit the U.S. from November 8 to 12 at the invitation of U.S. Treasury Secretary Janet Yellen. Vice Premier Hu, as the economic and trade chief in U.S.-China relations, is expected to focus on improving economic relations between the two countries.

The U.S. Treasury Department said that Vice Premier Hu will have a bilateral meeting with Secretary Yellen in San Francisco on November 9 and 10, and explained that this meeting will be a time to stabilize the relationship between the two countries and make progress on economic issues.