China: FDI no longer a two-way street - Standard Chartered

China has turned into a FDI net exporter since 2022, with inward flows collapsing to USD 4.5bn in 2024. China ODI has shifted from DM to EM, and become more focused on metals and transport in recent years. Amid near-term capital outflow pressure, demand for diversification to support CNY and assets medium-term, Standard Chartered's economists report. 

A dramatic unfolding of Trump 2.0

"Trump 2.0 has unfolded in an unprecedented fashion; only a month after taking office, he has announced multiple tariff actions on a broad swathe of countries. The US stance on China remains tough, with another 20% tariff already imposed. Besides trade, the US also seeks to curb China's maritime, logistics and shipbuilding sectors. Furthermore, Trump has signed the America First Investment Policy memorandum, hardening restrictions on bilateral investment with China. We believe more such actions are likely."

"Near-term, additional US tariffs could drag down China's growth, while the impact of its other restrictions are likely to be limited. China dominates global shipping; hence, finding an alternative to China and building ships may take time. The Committee on Foreign Investment in the United States (CFIUS) mandate had already been strengthened during the previous trade war, and China's FDI in the US has dropped notably since then. However, rising policy uncertainty could continue to disrupt global supply chains and capital markets, increasing market fragmentation. This could pose downward pressure on the CNY near-term. Medium-term, however, RMB internationalization could be accelerated, supporting both the currency and demand for CNY-dominated assets."

"In this report, we look at China's FDI trends. China has turned into a net FDI exporter since 2022, reflecting a reduction in foreign investors' investment and the repatriation of profits from China. China has increasingly invested in EM while its outward direct investment (ODI) in DM has declined notably (not only in the US). By sector, its ODI in metals and transport has ramped up while dropping in energy and technology. The US' FDI position (i.e., cumulative FDI) in China is triple that of China's ODI position in the US. While we do not expect China to target US FDI assets broadly as part of its retaliation against US tariffs, protectionist policies in the US could prompt capital withdrawal from China, adding downward pressure on the CNY."