Nicholas J. Lardy announced President Xi Jinping's recent assurances to U.S. CEOs conflicts with new data, revealing that, for the first time, foreign firms in China are net sellers of existing investments, exceeding $100 billion in outflows during Q1-Q3 2023, driven by United States-China tensions and Beijing's regulatory measures. This unprecedented change is a consequence of increasing geopolitical tension and regulatory pressures within China's economic environment. Lardy is a non-resident senior fellow at the Peterson Institute for International Economics (PIIE).
According to Nicholas Lardy at PIIE, Chinese President Xi Jinping met with U.S. tech CEOs in San Francisco recently, where he assured them of China's dedication to the United States. Lardy suggested it was not surprising that Xi would support more cooperation. New data revealed foreign firms in China are not reinvesting their earnings and have begun leaving China.
Outflows have exceeded $100 billion for the first time, the data revealed. Lardy said the current trends are likely to continue towards the end of 2023. According to Lardy, United States-China tensions, Beijing's closure of foreign consultancy firms and a stricter regulatory environment have all led to investor hesitancy.
According to Lardy, discrepancies between the Ministry of Commerce and State Administration of Foreign Exchange (MOFCOM) have further complicated the accuracy of the data. The discrepancy between the two agencies' data stems from differences in measuring FDI, with State Administration of Foreign Exchanges (SAFE) using a net basis and MOFCOM measuring gross FDI inflows. The recent decline in FDI, reported by SAFE in 2022, despite a rise reported by MOFCOM, prompts scrutiny into the causes, revealing that offshore IPOs in the United States, tightened rules by the Chinese securities regulator and threats of delisting by the United States accounting watchdog impacted Chinese companies' listings in U.S. markets.
According to Lardy, although the United States' watchdog gained access to auditing documents, alleviating delisting risks, new U.S. listings were $405 million in the first three quarters of 2023. Similar patterns were observed in Hong Kong where the value of IPOs by Chinese firms fell significantly by 2022. Foreign capital raising for China-focused venture capital and private equity funds mirrored this trend, rising to almost $50 billion in 2021 before dropping to $5 billion in Q1-Q3 2023. Reinvested earnings by foreign firms in China likely followed suit with surveys indicating increased caution due to geopolitical tensions and China's slower growth outlook.
