Understanding the Implications of Declining FDI in China: A Shift Toward Indigenous Advancement and Competitive Domestic Enterprises

Perspective | The Decrease in China's Foreign Direct Investment Might Not Be Unfavorable

The decline could be due to the emergence of more competitive Chinese businesses and the progress in local technology.

International investment has long served as a crucial catalyst for the economic growth of the nation. China has been actively pursuing these investments from overseas since the end of the 1970s. The initiation of this foreign investment sparked a wave of reform, increased openness, and the modernisation of socialism in China. Considering the current situation, is there cause for concern that the recent downturn might further dampen China's economic progress?

Initially, it's important to note that concentrating only on the exit of international investments might provide a skewed perspective. China continues to be a major investment recipient. Over the past thirty years, China's net foreign direct investment (FDI) – which is investments less outflows – has consistently remained in the positive. Furthermore, in 2023, China, having a total FDI inflow of US$163 billion, remained the second-largest recipient of FDI globally.

Even if overseas funding is indeed declining, what's more crucial is how much these investments continue to impact China's economy at present. In simpler terms, do they hold the same indispensable value as they did years back?