For 3 decades, the history of the global economy has revolved around a key plot point: the metamorphosis of China into a modern Eldorado. Follow the line, traditional wisdom is gone, and wealth waited.
Now suddenly the tide has turned. After almost seven years of constant rain of money, they are moving capital out of the country. Over the past six months, foreign direct investment in China has turned negative.
Jens Nordvig, a former senior global markets economist at Goldman Sachs and one of Wall Street’s most sought-after voices, denounced the reversal on Twitter but said it “doesn’t get enough attention. “
The update comes even after China lured billions of dollars from foreign companies at the height of the pandemic, according to data from Nordvig’s Exante Data.
Nordvig said the last time foreign investment was negative in 2016, “but at the time it was because China had experienced an ‘exit boom’ with gigantic outbound mergers and acquisitions, which have since been shut down. Admissions have never been lower. “
You don’t want to think too much about what’s been replaced since then.
China’s zero-covid policy means the country’s economy is running in suits and starting, like a teenager learning to wield a stick. The rise in geopolitical tensions would possibly have reached a tipping point, and that’s even before Chinese balloons start circling. And corporations must diversify their supply chains—in other words, figuring out how not to rely entirely on Chinese production—after the pandemic made them realize that resilience is as vital as efficiency.
This may mean that corporations are now less involved in making cash in China and more involved in making sure they can withdraw their cash before it’s too late.
Multinationals “investing in China would arguably be more involved in returning capital than returning * capital,” Matthew Pines, lead intelligence officer at cybersecurity company Krebs Stamos Group, tweeted in reaction to Nordvig.
The shift in foreign direct investment is vital for China, but it also has important implications for globalization and long-term inflationary trends, according to Nordvig. Getting factories out of the country will come at a cost, which will almost in fact move to China. consumers. And there is no guarantee that Vietnam, India or anyone else will adjust to China’s very low prices.
“China is reopening and expansion is returning, that’s clear,” Nordvig tweeted. “But a lot has been replaced below the surface, and not everything can be normalized in the same way. I’ll leave it at that. “