Direct investment liabilities in China fell by $11.8bn during this year’s third quarter, according to the country’s foreign exchange institution.

The measure keeps track of monetary commitments and debts from Chinese subsidiaries to parent companies abroad.

As a result, according to Bloomberg, China’s direct investment liabilities in its balance of payments turned negative for the first time since records began in 1998, highlighting Western companies’ reluctance to reinvest profits in the country.

The numbers are part of a wider trend involving fewer greenfield investment initiatives in China. Beijing is increasingly relying on foreign direct investment (FDI) projects to propel the country’s economy, which has been seeing sluggish growth in the wake of the Covid-19 pandemic.

“In 2022, the number of greenfield FDI projects in China was less than the amount recorded in 2019,” says Glenn Barlie, chief economist at Investment Monitor. “A slowdown in the Chinese economy, strict Covid lockdowns, a housing crisis and rising geopolitical tensions are among the reasons for the decline in inward investments.

“Many companies are looking to diversify away from China, be that as part of a China+1 policy or investing in alternative regional markets. The current main beneficiaries of China’s decline are India, Malaysia, Philippines and Vietnam.”

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In a separate comment for Bloomberg, Michelle Lam, Greater China Economist at Societe Generale, said the fall in China’s balance of payments could mean “there are more divestments than new investments”.

“That’s quite concerning,” Lam said. “I think it’s just continued diversification of supply chains. Confidence will take time to recover following the more supportive measures.”

Despite this, however, China remains the second largest FDI destination in the world, behind the United States. In 2022, FDI levels reached $189bn, marking an 8% increase from the previous year, according to the US Department of State.