Overview

• China recorded its first-ever quarterly foreign direct investment (FDI) deficit of $11.8 billion in Q3 2023, a noticeable shift since its foreign exchange regulator began compiling data in 1998.
• The FDI deficit is thought to be linked to Western countries' 'de-risking' strategies and geopolitical tensions, creating challenges for China's appeal to overseas companies.
• Multinational companies repatriating earnings and interest rate differentials between China and developed countries have also contributed to the weakness in China's inward FDI.
• Increased capital outflow pressures and continually low-interest rates in China have resulted in the country's basic balance recording a deficit of $3.2 billion, only the second deficit of its kind on record.
• Chinese authorities are stepping up efforts to control yuan trading, as data reveals onshore trading volume hit record lows in October. The People's Bank of China has also encouraged major banks to limit trading and deter clients from exchanging the yuan for the dollar.