China | Should we worry about the falling FDI?

Summary

We discuss important issues on the recent FDI drop: how serious is it? Is the ongoing FDI drop structural or cyclical? Should China need FDI as much as before? How should Chinese government lure the FDI back and guide them in high-end manufacturing?

Key points

• Key points:
• Based on the analysis on the different statistical methodology by SAFE and Ministry of Commerce, the FDI inflow dipping is not as serious as the market claims based on Ministry of Commerce data, but much more serious based on SAFE data (the historical low).
• The cyclical factors include China's economic slowdown and industrial profits slowdown, deceleration of "round-tripping" and high funding cost of USD.
• The structural factors mainly include global value chain relocation outside China, “China+1” strategy, rising labour cost, geopolitical risks etc.
• The indirect effect of FDI is still important to Chinese economy although China may not need as much FDI as before after becoming net creditor.
• We also discuss what should Chinese government do to attract FDI and to guide FDI to the high-end manufacturing sector.

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