China’s foreign direct investment (FDI) inflows have significantly declined since 2022, raising concerns about potential capital flight from China. This analytical note aims to delve into the recent decline in China’s FDI inflows. Our analyses suggest that the recent fall in FDI does not indicate a mass exodus of foreign firms from China. While tighter global financial conditions and widening interest rate differentials have been the main drivers of capital outflows, there is little evidence that political divergence amid heightened geoeconomic tensions have weighed on FDI in China. In fact, China continues to attract FDI inflows, with manufacturing and scientific research emerging as the bright spots. These favorable developments will continue to support China’s pursuit of high-quality growth.
Analytical Notes