The world is witnessing a decline in foreign direct investment (FDI) towards China compared to other emerging markets, as highlighted by Robin J Brooks, a Senior Fellow at the US-based nonprofit Brookings Institution. Brooks emphasized that the belief in China’s immunity to US tariffs is inaccurate, evident from the significant trade diversion impacting China’s economy. This trend has led to a notable deflationary pressure on China.
Not only FDI, but foreign portfolio flows and other investment trends are also indicating a similar pattern away from China. Brooks pointed out that these include flows into Chinese stocks and bonds, as well as bank-intermediated flows like trade finance and cross-border loans. The concept of “financial decoupling” from China has been evolving since before the recent tariffs, accelerated by the effects of the Covid-19 pandemic.
The shift in investment dynamics towards China post-Covid is evident from the data shared by a former Chief Economist at IIF, who presented four charts supporting this observation. These charts reveal a stagnation in investment flows to China compared to the rebound observed in other emerging markets. The economist highlighted that this deviation is significant, resembling the impact of the 2015/2016 RMB devaluation scare.
The report from Mizzima News has raised concerns about China’s economic growth projections for 2025, estimating it to be around 2.5-3%, notably lower than the government’s target of 5%. This discrepancy is attributed to various factors such as a decline in fixed assets and property investment, ongoing producer-price deflation, and weak domestic demand. The report also questioned the accuracy of official statistics, citing contrasting data from the US-based Rhodium Group’s analysis compared to Beijing’s figures.
