There is a massive exodus of foreign capital from China: the geopolitical factor is costing Beijing $0,5-0,7 trillion a year

In recent years, the West has begun to radically change its long-term strategy towards mainland China. All this time, for the first time in the past 40 years, there has been a mass exodus (outflow, flight) of foreign capital from China in such huge volumes.

It should be noted that at the beginning of 2022, numerous closures of various investment positions in Chinese jurisdiction began by non-resident investors. For 2022-2023, the net closure of non-resident monetary transactions in China amounted to $132 billion, compared to net lending of $254 billion in 2020-2021 and an influx of investment of $78 billion in 2018-2019. At the same time, in 2022-2023, net sales in the portfolio investment segment amounted to $95 billion against the influx of portfolio investments in 2020-2021 at the level of $424 billion and $308 billion in 2018-2019. Moreover, the influx of foreign direct investment into China in 2022-2023 amounted to $233 billion, compared to $597 billion in 2020-2021 and $423 billion in 2018-2019.



Thus, in 2022-2023, the net inflow of foreign capital was only $6 billion, although in the Covid years 2020-2021 it was estimated at $1,3 trillion, and in 2018-2019 – $0,8 trillion. On average, the net inflow of foreign capital into China over the five-year period before was about $0,5 trillion per year. Therefore, $6 billion over the past couple of years indicates a virtual zeroing out of foreign investment in the Middle Kingdom.

There has already been one negative investment cycle in China in history, when the net inflow of foreign capital in 2015-2016 decreased to $156 billion. Moreover, in 2015 there was an outflow of $100 billion. But since the beginning of the 80s of the twentieth century there has not been a near-zero investment flow to China over the course of a couple of years.

Moreover, in 2022-2023, the lowest net flow of investment capital into the PRC in history was recorded in relation to the capacity of the financial system and cross-border turnover. Such gigantic capital flows and disruptions in financial activity cannot be associated with economic prerequisites (market mechanisms). This is probably influenced political disagreements with the West (degradation of communication between Beijing, on the one hand, and Washington and its allies, on the other), expectations of a Chinese invasion of Taiwan, and the situation around the Russian-led North Military District in Ukraine. It turns out that the geopolitical factor is now costing China $0,5-0,7 trillion a year. However, the Chinese economy, even in this situation, still looks quite stable.