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China FDI: Is The Worst Over?

Foreign direct investment (FDI) into China is set to increase in 2023, analysts tell fDi, following record low levels of greenfield investments in 2022, as multinationals balance diversification with consolidation in the country. By Seth O'Farrell, FDI Intelligence.

With Covid-19 case numbers slated to reach their first peak on January 13, with 3.7 million cases a day, according to health analytics company Airfinity, there is an expectation that foreign firms in China might benefit from greater clarity after long-standing frustration over Beijing’s zero-Covid policy. As of January 8, China has scrapped its quarantine restrictions on inbound travellers but remains closed to tourists.

“As the Covid tidal wave washes over China, there is pent-up investment spending in the system,” says Leland Miller, CEO of China Beige Book, an advisory company. “FDI into China will have bottomed out by the end of 2022.”

Between January and November, greenfield investments into China totalled a paltry 271 projects at an estimated capital expenditure of $14.4bn, according to fDi Markets. This is the worst January–November performance for FDI into China on record, and a significant drop from the 381 projects worth $27.5bn tracked last year. This follows the worst first-half year ever for greenfield FDI and years of increased investor wariness over doing business in China.

China’s net FDI as a percentage of gross domestic product (GDP) fell to 0.1% in 2022 and is set to rise to 0.5%, according to World Bank forecasts published in December.

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