According to the latest balance of payments data, amid a wave of “de-risking” moves by Western governments, China marked its first-ever quarterly deficit in foreign direct investment (FDI), highlighting the difficulties Beijing will face in attracting overseas companies in the present geopolitical environment.
In October trading of onshore yuan against the dollar also reached record low volumes, pointing to the effects of the actions by authorities to curb the selling of yuan.
During the July to September period direct investment liabilities, a measure of FDI, were in a deficit of $11.8 billion, according to a Friday release of preliminary balance of payments data.
It marks the first quarterly shortfall since data began being compiled by the nation’s foreign exchange regulator in 1998. Analysts are attributing it to the current geopolitical environment, and the “de-risking” being performed by Western countries in anticipation of a worsening of relations between the world’s second largest economy and the West.
Due to this, China saw its basic balance, encompassing current account and direct investment balances, record a $3.2 billion deficit, marking only the second quarterly deficit on record. The basic balance is seen as more stable than more volatile portfolio investments.
Tommy Xie, head of Greater China Research at OCBC wrote, “Given these unfolding dynamics, which are poised to exert pressure on the RMB, we anticipate a sustained strategic response from China’s authorities.”
Xie said he expects the central bank of China will work to support the yuan in the face of these conditions by continuing counter-cyclical interventions, including daily yuan fixings, as well as managing yuan liquidity in the offshore market.
The onshore volume of yuan trading vs the dollar fell to 1.85 trillion yuan ($254.05 billion) in October, a 73% fall from August’s level and a record low, according to the latest data released.
Reuters is reporting that its sources have told it that the People’s Bank of China has urged major banks to restrict trading and dissuade clients from exchanging yuan for dollars.
According to a report from Goldman Sachs, foreign exchange outflows from China increased to $75 billion, the largest monthly reading since 2016.
