China's emerging city rankings 2022

Global Outlook: capital flows in and out of China 

In EIU’s latest Global Outlook video, head of forecasting and economics, Tom Rafferty, and analyst, Chim Lee, discuss capital flows in and out of China.

China has always been one of the most attractive international investment destinations, however things took a turn for the worst in 2022, owing to three main factors: the covid-19 pandemic, China’s internal economic factors and external geopolitical factors. 

Although the pandemic is largely behind us, China moved away from lockdowns and other strict control measures much later than other major economies, and investment will take a while to recover. 

Moreover, China’s underwhelming economic recovery after the pandemic has led to further economic uncertainty. EIU estimates China’s economy will only grow by 5.2% this year and while consumption has been strong this year, weak demand for manufactured goods both within and outside of China points to weaker FDI interests for the time being. 

The other driving factor of foreign direct investment (FDI) flows in recent years has been the reorganisation of global supply chains. While China continues to be a major destination for FDI, geopolitical tensions and growth in other emerging markets such as India and Mexico, are diversifying supply chains. 

“After a fairly weak period of ODI (outward direct investment) from China, flows are now on the rise. EIU forecasts China will regain its position as the second-largest source of ODI by 2024 and this is set to grow further over the coming decade. This is not a particularly surprising development: as a country’s income rises and the domestic market matures, its companies tend to go abroad and look for new opportunities.“

Chim lee, analyst, china, EIU

EIU’s free report, China Going Global Investment Index 2023, provides further insights into China’s investment trends and is available to download here.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.