Foreign Investment Has Gone Negative For The First Time Since 2016

For three decades, the story of the global economy has revolved around one key plot point: the metamorphosis of China into a modern-day Eldorado. Toe the line, the conventional wisdom went, and riches awaited.

Now, suddenly, the tide has turned. After almost seven years of a consistent rainfall of money, companies are pulling capital out of the country. Over the last six months, foreign direct investment into China has gone negative.

Jens Nordvig, the former senior global markets economist at Goldman Sachs and one of the most sought-after voices on Wall Street, called out the reversal on Twitter while claiming that it “is not getting enough attention.”

The shift comes even after China attracted hundreds of billions of dollars from foreign companies throughout the height of the pandemic, according to data from Nordvig’s company Exante Data.

Nordvig said the last time foreign investments were negative was in 2016, “but back then it was because China saw a ‘boom in outflows’ with big outbound M&A, which has since been shut down. The inflows have never been this weak.”

You don’t have to think too hard about what’s changed since then.

China’s Zero-Covid policy has meant the country’s economy is operating in fits and starts, like a teenager learning to drive a stick. Rising geopolitical tensions may have hit a tipping point — and that’s even before Chinese balloons began touring America. And companies are looking to diversify their supply chains — in other words, figuring out how not to be totally dependent on Chinese manufacturing — after the pandemic made them realize that resilience is every bit as important as efficiency.

That could mean that companies are less worried now about making money in China and more focused on making sure they can get their money out before it’s too late.

Multinational corporations “investing in China may be getting more concerned about return *of* capital than return *on* capital,” Matthew Pines, director of intelligence at cybersecurity firm Krebs Stamos Group, tweeted in reply to Nordvig.

The shift in foreign direct investment is important for China, but it also has major implications for the future of globalization and inflation trends, according to Nordvig. Moving factories out of the country will come at a cost, and that will almost assuredly be passed on to consumers. And there’s no guarantees that Vietnam, India or anyone else will be able to match China’s low, low prices.

“China is reopening, and growth is coming back, that is clear,” Nordvig tweeted. “But a lot of things have changed under the surface, and not everything may normalize the same way. I will leave it at that.”