Inward FDI flows to China continue to exceed outward FDI

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/04

Preliminary balance-of-payments figures released by China’s commerce ministry show that in 2014 flows of foreign direct investment into China continued to slightly exceed outbound FDI from China to other countries. Inbound FDI to China amounted to $120 billion, an increase of 2 % from 2013. Outbound FDI was $103 billion, an 11 % increase from 2013. China’s FDI abroad increased significantly during the third quarter after the streamlining of the process for approving investment outside China. Growth, however, subsided in the final months of the year.

The gap between China’s inbound and outbound FDI narrowed to its smallest size ever last year as China’s investment abroad continued its robust growth. In comments on the latest release of balance-of-payments data, the commerce ministry noted that, if e.g. reinvested profits are included, China’s FDI abroad last year amounted to $140 billion, making China a net FDI exporter.

China’s foreign currency reserves (not including reserve assets other than foreign currency) amounted to $3.84 trillion at the end of December, down about $50 billion from the end of September. China’s foreign currency reserves have been shrinking since last summer. Given the slight increase in the current account surplus, the drop in reserves likely reflects increased capital exports. The second half of the year also saw a modest weakening of the yuan’s exchange rate, which may be a sign of increased capital exports. Final balance-of-payments data should help settle the issue of whether China last year became a net capital export for the first time.

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