What China's first deficit in investment says about the West

According to balance of payments data, China experienced its first-ever quarterly deficit in foreign direct investment (FDI), highlighting Beijing’s difficulty courting foreign businesses following a “de-risking” decision by Western governments. October saw record-low volume for onshore yuan trading against the dollar, underscoring the authorities’ increased efforts to limit yuan selling. According to preliminary data on China’s balance of payments released late on Friday, there was a $11.8 billion deficit in direct investment liabilities, a measure of foreign direct investment, during the July-September period. This quarter’s deficit is the first since China’s foreign exchange regulator started gathering data in 1998, and it may be related to the effects of Western nations “de-risking” their investments from China in the face of escalating geopolitical tensions. The result was China’s second-ever quarterly deficit of $3.2 billion in its basic balance, which includes current account and direct investment balances, which are more stable than volatile portfolio investments. In order to support the currency in the face of these challenges, Xie anticipates that China’s central bank will keep up its counter-cyclical interventions, which include maintaining a significant bias in daily yuan fixings and controlling yuan liquidity in the offshore market. According to the most recent data, the onshore volume of yuan trading against the dollar fell 73% from August levels to a record low of 1.85 trillion yuan ($254.05 billion) in October. According to sources who spoke to Reuters, the People’s Bank of China has pushed big banks to restrict trading and discourage customers from exchanging their yuan for dollars. According to data from Goldman Sachs, China’s monthly outflow of foreign exchange increased significantly in September to $75 billion, the highest amount since 2016. (With agency inputs)