For any country, attracting foreign investment to build factories is an important national policy.

This is true for the United States, India, Japan, and China. Since the reform and opening-up, foreign investment has played a crucial role in shaping China's manufacturing system and, to some extent, helped China become the world's largest manufacturing country.

Foreign investment has brought new services, products, business models, and transaction methods to China, stimulating domestic enterprises to strive for development, akin to a "catfish effect".

For example, Apple's presence in China has driven the development of the domestic mobile phone and mobile internet industries. Tesla's entry into China has spurred the domestic electric vehicle industry and promoted the growth of domestic new energy vehicles.

There are many similar examples, and I won't enumerate them all. Attracting foreign investment has become an important indicator. Over the past few decades, China has been working hard to attract foreign investors to set up factories and invest in the country.

Recently, according to the international balance of payments data for April to June released by the State Administration of Foreign Exchange, foreign direct investment in China decreased by $14.8 billion in the second quarter of this year, marking the first negative growth in three quarters.

As shown in the figure below, the last negative growth was in the third quarter of 2023, when the decrease was $12 billion. This time, it is $14.8 billion.

This $14.8 billion decrease is the lowest since records began, specifically the lowest in 30 years since 1994.

Honestly, this data is quite alarming. Why has foreign investment in China decreased so significantly? In my opinion, this is caused by various factors.

Firstly, in 2013, China surpassed the United States in terms of merchandise trade volume, becoming the world's largest trading nation. In 2014, China's outbound investment exceeded actual foreign direct investment, weakening the relative importance of attracting foreign investment.

Secondly, China's traditional advantages in attracting foreign investment are also weakening. Labor costs are rising, and the demographic dividend is diminishing. Data shows that in 2023, the total profit of foreign-invested enterprises in industrial enterprises above a designated size decreased by 6.7% year-on-year, indicating a weakening profit-making effect of foreign investment in China.

Furthermore, changes in the capital market policy environment and the international situation have put considerable pressure on foreign investors, leading many to gradually relocate, resulting in a decrease in foreign investment. For example, Apple has shifted some of its production capacity to India.

Moreover, the current global economic downturn has reduced investment returns, prompting many companies to cut costs, reduce investments, and conserve cash, which in turn affects the capital market.

Nevertheless, the $14.8 billion decrease, marking the lowest level in 30 years, warrants our vigilance. Foreign investment has played and will continue to play a crucial role in China's economy, and we cannot afford to ignore it.