SHANGHAI/SYDNEY, Aug 7 (Reuters) – Since China opened to foreign investment in 1978 under Deng Xiaoping, global firms have ploughed in hundreds of billions of dollars to buy and build factories for market access and cheap labour, bolstering the Chinese currency. A gentle downtrend in foreign direct investment gave way to a steep drop last quarter and inflows to China slammed to their lowest since records began 25 years ago, raising the prospect that the long-term trend is turning. Corporate leaders and their advisers say a shift is under way and the political concerns behind investment decisions are long term, which leaves the yuan facing pressure from what was long one of its staunchest supports. “FDI has historically not been a huge swing factor in the exchange rate’s value, because you typically had surpluses of $50 to $100 billion a year,” said Logan Wright, director of China Markets Research at analytics firm Rhodium Group. “But when that swings to a deficit, which is where it is right now … that’s a pretty big adjustment.” Foreign direct investment (FDI) inflow slowed to less than $4.9 billion for the second quarter, while Chinese companies’ investments abroad sent net direct investment to a record deficit of $34.1 billion, figures published last week by China’s State Administration of Foreign Exchange (SAFE) showed. Investors and analysts say the decline is the result of firms’ nervousness over the direction of competitive and political friction between China and the West which has already led to trade and investment restrictions and a diplomatic chill. Sources have told Reuters the Biden administration is likely to adopt new outbound investment restrictions on China in the coming weeks. Japan, the U.S. and Europe have already restricted the sale of high-tech chipmaking tools to Chinese companies while China has hit back by throttling exports of raw materials. Diplomatic tensions aside, business confidence had already been eroded by three years of Beijing’s strict “zero-COVID” policy of quarantines and lockdowns that disrupted manufacturing and supply chains. China’s regulatory crackdowns on some industries and raids on U.S. consulting firms have also been unnerving, leading businesses to fret over when and where the next hit was coming. “I don’t have one client wanting to invest in China. Not a single client,” said John Ramig, shareholder at law firm Buchalter, who specialises in international business deals and structuring of manufacturing. “Everyone is looking to either sell their Chinese operation, or if they’re sourcing products in China, they’re looking for an alternative place to do that,” he said. “That’s dramatically different from what it was even five years ago.” Oxford Economics’ analysts say greenfield flows into new production capacities, probably best capture the forward-looking sentiment and have been sliding for years to total just $18 billion in 2022 from running around $100 billion a year in 2010-2011. BIG DECISIONS The slide in…
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