Foreign Investment Into China Falls as Weaker Yuan Dents Inflows

  • FDI decreased 5.8% in December, while ODI climbed 6.1%
  • Outbound buying by Chinese companies hit record in 2015

A vendor packs mannequin heads into a bag at a wig stall in a street market. FDI into China fell 5.8 percent in December from a year earlier to 77 billion yuan ($12 billion), while outbound non-financial investment climbed 6.1 percent.

Photographer: Xaume Olleros/Bloomberg

China’s weakening yuan isn’t just spurring capital to leave the country, it’s also acting as a brake on foreign-direct investment.

FDI into China fell 5.8 percent in December from a year earlier to 77 billion yuan ($12 billion), while outbound non-financial investment climbed 6.1 percent, government data showed Wednesday. Economists said expectations for further yuan weakness are one reason behind the flows as savers and companies shuffle money out while inbound investors take a wait-and-see approach.

"It’s because foreign investors tend to delay their investment in the face of strong depreciation expectations," said Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. "Why not wait a little bit longer so that the same amount of dollars can exchange for more renminbi to invest?"

Chinese officials have been at pains to talk down bets on a major depreciation. An estimated $843 billion in capital left China between February and November, the most recent tally available according to data compiled by Bloomberg, while the nation’s stockpile of foreign-exchange reserves plunged by $513 billion in 2015 to $3.33 trillion.

The yuan fell to a five-year low last week, bringing its drop over the past year to almost 6 percent.

Buying Spree

Still, not all of the money leaving China can be put down to capital flight. Overseas acquisitions by Chinese firms hit record levels in 2015 as China Inc. spread its wings. It’s the kind of investment that underscores the government’s ambition to grow the nation’s influence around the world even as its volatile domestic markets rattle global investors.

Both state-owned and private companies broadened their reach to seek acquisitions of famous brands, technology and financial services assets, while shying away from the traditional natural resources arena that has tended to predominate in previous lists.

Since the start of 2016 alone, Chinese companies have pulled off two major acquisitions in the U.S. General Electric Co. agreed to sell its home-appliances business to Qingdao Haier Co. for $5.4 billion and billionaire Wang Jianlin’s Dalian Wanda Group Co. agreed to spend as much as $3.5 billion to take over the Legendary Entertainment production house.

"Greater appetite for mature assets and better awareness of political and commercial risks in emerging economies have further accelerated the shift of investment activity from developing to advanced economies," Rhodium Group analysts Thilo Hanemann and Cassie Gao wrote in a report this month.

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