Direct investment liabilities in the country’s balance of payments have been slowing in the last two years.
China is struggling in its attempt to lure foreigners back as data shows more direct investment flowing out of the country than coming in, suggesting companies may be diversifying their supply chains to reduce risks.
But Beijing’s pledges have rung hollow for some firms, with foreign business groups decrying “promise fatigue” amid skepticism about whether meaningful policy support is forthcoming. They also have incentive to repatriate earnings overseas because of the wide gap in interest rates between China and the US, which may be pushing them to seek higher returns elsewhere.
Companies have cited various countries in the region as destinations for their supply chain shifts. Japan, India and Vietnam were floated as “top destinations gaining more attraction” in a spring survey of companies by UBS Group AG. A March AmCham report pointed to developing Asia and the US as places where members were considering moving capacity to from China.
“Some of the most damaging things have been the abrupt regulatory changes that have taken place,” said Carnell, pointing to this year’s anti-espionage campaign, which resulted in some firms having their offices raided by local authorities. “Once you damage the sort of perception of the business environment, it’s quite difficult to restore trust. I think it will take some time.”