Recent data has starkly highlighted the impact of risk-averse strategies on China, the world's second-largest economy.
Economic readings in October revealed an unexpected contraction in manufacturing while exports continued their decline at a much faster pace, Reuters reported.
Notably, China recorded its first quarterly foreign direct investment deficit between July and September, indicating rising capital outflow pressures.
Concerns over long-term prospects
Peterson Institute for International Economics senior researcher Nicholas Lardy said foreign companies were not only withholding reinvestment but were also divesting and repatriating funds.
This trend poses a risk to the yuan's strength and China's economic growth.
Foreign businesses have had longstanding worries about geopolitics, tightening regulations and a more favourable playing field for China’s state-owned companies.
But for the first time in the four decades since it opened up to foreign investments, executives are now also concerned about long-term growth prospects.
A survey by think-tank The Conference Board last week showed more than two-thirds of chief executive officers were concerned that China's demand had not returned to pre-COVID levels.
About 40% of them are expecting a decrease in capital investments in the country over the next six months and a similar proportion expecting to cut jobs.
Despite these challenges, China's policy advisers are targeting a 5% GDP growth in 2024 and aiming to double the size of the economy by 2035.
Still wary
Premier Li Qiang's assurance that China is open to foreign investments has been met with scepticism in light of a broader anti-espionage law, raids on consultancies and due diligence firms and exit bans, trade bodies say.
"Foreign business executives here are eager to continue in China," AmCham president Michael Hart said.
"But boards back in the US are wary."
European firms have raised fair competition concerns about state-directed lending to Chinese manufacturers, while Canada China Business Council managing director Noah Fraser said "bad blood" remains over the detention of two Canadians from 2018 to 2021.
Private equity is no different. As of November 24, 2023, no China-focused buyout funds have been raised, a stark contrast to previous years.
Primavera Capital founder Fred Hu cites macroeconomic uncertainty and regulatory crackdowns as deterrents, with firms increasingly looking towards Southeast Asia, Australia, and Europe.
Some bright sparks
Even with these challenges, some foreign companies remain committed to the Chinese market, including McDonald’s, which raised its stake in its China business last week.
An executive at a European hotel chain, who spoke to Reuters on condition of anonymity due to the topic's sensitivity, said his firm was happy to reinvest profits in China for now.
"We know what's going on politically and yes, economically," he said, adding the latest data "was nothing to be proud of."
"It's slow, but only warrants taking a 'wait and see approach'."