Disaster for Chinese economy on brink as businesses pull billions out of country

Foreign businesses are pulling more money out of China than they are putting in, according to official data. Concerns about the country’s slowing economy, low-interest rates, and tensions with the US are leading companies to consider alternative markets.

The upcoming meeting between Chinese leader Xi Jinping and US President Joe Biden is eagerly anticipated, but businesses are already approaching the situation with caution.

Nick Marro from the Economist Intelligence Unit notes that worries about geopolitical risks, policy uncertainty, and slower growth are prompting companies to explore other options.

He said: “Anxieties around geopolitical risk, domestic policy uncertainty and slower growth are pushing companies to think about alternative markets.”

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In the three months leading up to September, China experienced a deficit of $11.8 billion (ยฃ9.6 billion) in foreign investment, marking the first time since record-keeping began in 1998. This suggests that instead of reinvesting profits in China, foreign companies are choosing to move their money out of the country.

Interest rates also play a role, as China stands out by lowering borrowing costs while many other countries, including the US and Europe, are raising rates to address inflation. The higher returns associated with increased borrowing costs attract foreign capital.

The European Union Chamber of Commerce in China notes that businesses are not reinvesting their earnings in China but are instead transferring funds overseas, where they can earn higher returns on investments compared to China. This trend is attributed to concerns about geopolitical risks, policy uncertainty, and slower growth.

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The president of the American Chamber of Commerce in China, Michael Hart, points out that some companies withdraw earnings from China as part of their long-term profit cycles, especially when their projects reach a specific scale and profitability.

“The withdrawal of profits does not necessarily indicate that companies are unhappy with China, but rather that their investments here have matured,” Hart said.

He added that this as a positive sign, suggesting that companies are successfully integrating their China operations into their global strategies.

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