China’s slowing foreign direct investment (FDI) inflows may signal slower global growth, according to Alejandra Grindal, chief economist at Ned Davis Research, as greenfield FDI in the country reached a new low in 2022.

In an interview with fDi, Ms Grindal explains that China’s FDI figures being lower than other advanced economies reflects multinationals’ move away from finding the lowest cost-producer. Coupled with the geopolitical concerns over China, this will ultimately lead to “slower global growth ... and higher inflation”.

Greenfield FDI into China has been on a downward trend since the onset of the pandemic, resulting in some of the lowest levels ever recorded by fDi Markets. 

In 2022, the number of investment projects tracked into China fell to a record low of 314, according to fDi Markets — down 24% year-on-year. This had been a slight uptick from the second-lowest year for greenfield FDI into China, with the  360 projects recorded in 2020. 

FDI flows into areas such as services have failed to pick up the slack from the shortfall in falling investment into manufacturing. In 2022, FDI tracked into business service activities fell to its lowest amount of capital investment ever recorded, fDi Markets data show. 

Still, China remains a large domestic market and therefore attractive to the many multinationals already present in the country. In the absence of government intervention, Ms Grindal adds, there will not be an “abrupt end to our connection with China”, as manufacturing businesses are not easily relocated overnight.

This, however, does not make the FDI landscape any rosier. As a 2022 research note by consultancy Rhodium Group states: “China is facing a much more challenging FDI environment”. 

“China’s zero-Covid policies and increasingly troubled growth outlook have dampened capital expenditure plans by multinationals, especially those that rely on strong Chinese consumption growth,” it adds.

Despite slivers of optimism this year with pent-up activity being released following Beijing’s loosening of Covid-19 restrictions, Ms Grindal remains convinced that short of “a cyclical spike in investments, this is a downward trend for the long term”.

Meanwhile, following the Inflation Reduction Act in the US, there is greater “economic potential” in the US due to the incentives on offer and it being an easier place to do business, Ms Grindal notes, which is born out in the FDI flows. The US has been the biggest recipient of mega projects in 2022, according to fDi Markets.