CHINESE firms from carmakers to miners are ramping up their overseas spending, adding to pressure on the renminbi amid an accompanying exodus of foreign capital.
Chinese non-financial companies invested almost US$129 billion outside the country in the first 11 months of this year, according to government data released on Thursday (Dec 19). That puts outflows for 2024 on track to be the highest since 2016, with car firms, battery companies and others pouring money overseas to develop new production bases and improve access to raw materials.
The overseas spending is contributing to a gloomy outlook for the Chinese currency. Foreign firms pulled out almost US$13 billion in direct investment so far this year and there was also a record increase in money leaving financial markets last month.
With the threat of new US tariffs being imposed on Chinese exports early in the new year and the expectation that China will continue to cut interest rates to spur the economy, the renminbi is at risk of further losses after reaching its weakest level versus the US dollar in more than a year.
The increase in direct overseas investment is being driven in part by firms’ desire to reduce the risk of tariffs and get closer to customers. In addition to the US, which already has high tariffs in place on Chinese goods, the European Union is also imposing levies on Chinese electric vehicles, and others are looking into slowing or blocking the flood of cheap Chinese imports.
The impact of these outflows on the Chinese currency may be moderated as some outbound security investments are transacted in renminbi with conversion taking place in the offshore market. BLOOMBERG
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