Foreign investment into China practically collapsed last year, possibly bringing more uncertainty to the financial industry and international banks operating on the mainland. 

It might be that numbers don’t always tell the truth, or at least not all of it. But you can also turn that conventional wisdom on its head by saying they can at least point the direction something is going in.

Say you have a machine that randomly spits out numbers that tend to be in the range between 250 and 300, maybe the occasional 340, 187, or even 166. But then 15 suddenly pops up. You would sit up and ask - what?

Vivid Picture

That is exactly what happened to foreign direct investment in China last year, according to data from the Peterson Institute for International Economics that was sourced from China’s State Administration of Foreign Exchange (SAFE).

In a piece by online publisher Visual Capitalist released on Thursday, the numbers tell a relatively stark, and clear, story. Since 2011, foreign direct investment inflows into the mainland hovered between $166 and $344 billion. Last year – you guessed it – they were at $15 billion.

De-risking, not De-coupling

The rationale provided by them seems much like the fall in the Hang Seng and the Hong Kong property market decline, as we at finews.asia have already commented on at some length. 

A good deal of geopolitical de-risking (and not decoupling) seems to be going on right in front of our eyes, with tensions between the US and China increasingly worrying foreign investors and «holding back» investments from American companies with a presence on the mainland, Visual Capitalist maintains.

Closing Doors 

But the doors are also closing when it comes to future opportunities because of the more recent crackdown on due diligence firms and a new national security law, which have «disincentivized foreign investors from betting big if they wanted to», they added.

But this is also just a story, not the whole picture and there are some caveats to all this. The spikes in the data in 2018 ($234 billion) and 2021 ($344 billion) include Chinese company's IPOs on US-based exchanges, something that is included in mainland data.

Turning the Tap Off

«However, crackdowns from both Chinese and U.S. securities regulators in 2022 turned the tap off briefly. Despite the restrictions being since removed, new listings have not bounced back,» Visual Capitalist indicates.

They also cite the Peterson Institute’s comparisons of gross and net inflows of FDI, finding a $100 billion gap between the two – something that apparently means foreign companies in China are selling their investments, another ostensible red flag.

Ripple Effect

This is already having a ripple effect in many of Asia’s economies, including Japan, South Korea, and Thailand. For banks, it also means clearly less business on the commercial banking side, in investment banking and wealth management, possibly even hitting the retail segment.

But there are also larger, global consequences. In another graphic, Visual Capitalist indicates that much of sub-Saharan Africa is heavily indebted to China, much of which is related to Belt & Road infrastructure investment. According to the International Monetary Fund, the most indebted countries are also among the poorest.

No Mood to Forgive

That means, for one, that given slowing internal demand and the continued property crisis, the mainland is unlikely to be in the game of forgiving much of the remaining debt, and certainly not at the pace that the IMF and other multilateral organizations would like to see.

That also raises another point. All this also hampers new projects and new loans. Indeed, apart from the news overnight that the Maldives is increasing cooperation with China related to Belt & Road (collated Google news search), things have been remarkably quiet on that front after Italy announced in December that it was exiting the initiative altogether. 

That also takes us back to the general conventional wisdom that bills always come due - and that what you owe always must be paid back.

That might very well be, but it is also true that large debts and shrinking pools of liquidity seem to have a nasty habit of cutting into overall levels of business activity, and that is never a uniquely good thing for any part of the financial industry.