Investors head for the exits as China uncovers even more unemployed youth
(Originally published Aug. 8 in “What in the World“) Capital outflows are putting downward pressure on China’s yuan as foreign investment dries up and investors both foreign and domestic look to get their cash out of the country.
Foreign direct investment (FDI) to China in the second quarter dropped to $4.9 billion to its lowest in 25 years, according to the State Administration of Foreign Exchange, while Chinese companies’ investments abroad rose to $39 billion, sending net direct investment to a record deficit of $34.1 billion.
China has had net outflows of investment for decades, with its currency supported by an even larger trade surplus. But the latest data may suggest that capital outflows are growing worse, marking a turnaround from years in which Beijing had to fight the currency’s appreciation.
Source: World Bank
Some of the pressure on FDI into China comes from Washington, which is restricting outbound investment into sensitive sectors such as semiconductors and pressuring its allies to do the same. Washington is also leading calls to reduce U.S. dependence Chinese inputs—and so cut China’s dominance of the global supply chain. As a result, U.S. imports from China fell 24% in the first five months of 2023 and fell 25% in the three months ended May 31 compared to the same period in 2022.
Of course, capital also follows opportunity. China’s deepening economic morass is sending clear signals to investors that it’s time to head for the exits through no effort on Washington’s part.
Youth joblessness, which at 21% is officially at its worst since the 1970s, may indeed be much higher. China’s Ministry of Education has announced a crackdown on universities that are inflating their data on employment of graduates by forcing students to lie about their job status. Beijing last month launched a broad inspection drive to root out fraudulent economic data being reported from the provinces.
China’s drive for truthier data doesn’t square, however, with its attempts to muzzle those interpreting it. It’s times like this one needs to remember that China’s government, despite what the media reports, isn’t a monolith whose every action is determined directly by President Xi Jinping.