China reassures assembled multinationals such as Tesla, HSBC as FDI and stocks dip

China reassures assembled multinationals such as Tesla, HSBC as FDI and stocks dip

In the aftermath of a massive sell-off in the A-share market and a spike in investor worries, China’s central bank brought in foreign banks and multinational firms for a meeting in which it pledged to “optimise” its policy support.

Companies invited to attend the Monday gathering included JPMorgan, HSBC, Deutsche Bank, Tesla and Schneider, all of which have a large presence in China.

The talk was convened just over a month after the State Council, the country’s cabinet, issued guidelines vowing to strengthen protections for foreign investors, including stronger enforcement of intellectual property rights and more streamlined pathways for expatriate employees to earn residency.

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Echoing these priorities, People’s Bank of China governor Pan Gongsheng emphasised the need for a “market-oriented” and “law-based” environment in which businesses can thrive.

But even with these changes, investment continues to move away from China due to concerns over national security regulation, decoupling risks between the US and China, and flagging growth momentum weighed down by distress in the property market.

Foreign direct investment in China fell by 5.1 per cent, year on year, for the January-August period, to 847.2 billion yuan (US$116 billion), the Ministry of Commerce said on Friday. In the first seven months of 2023, US dollar-denominated foreign investment dropped by 9.8 per cent from a year earlier, to US$111.8 billion.

Will ‘small-scale dip’ in China’s FDI inflow fuel a big crisis of confidence?

Jitters over the challenges facing China’s economy and its ability to arrest the slowdown have also battered stock markets in the world’s second-largest economy.

Overseas investors withdrew about US$15 billion from China in August – the largest monthly outflow ever recorded for the country’s exchanges, according to the US-based Institute of International Finance.

As tensions between Beijing and Washington intensify, overseas investors are diversifying their portfolios and setting their sights on China’s Southeast Asian neighbours.

A report published by the Economist Intelligence Unit last week warned that foreign direct investment is now flowing to Southeast Asian economies at a rapid clip, and the report projected the region’s total would exceed China’s from 2024.

Data for August showed upticks in China’s domestic consumption and the total value of industrial production, which expanded 4.6 per cent and 4.5 per cent, respectively.

However, a larger fall in property investment and private investment, which dropped by 8.8 per cent and 0.7 per cent, respectively, in the first eight months, made clear that the road to recovery is still a bumpy one.

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