US and European companies are shifting investment from China to other developing markets, as a report from the Rhodium Group shows, with India receiving the largest share of foreign capital, followed by Mexico, Vietnam, and Malaysia.
These companies try to ignore the world's second largest economy even though China is an important player in the ever-increasing global growth. This brings indications of concern over China's business environment, economic recovery, and China's politics weighing on the minds of foreign investors.
The value of announced US and European green investment into India jumped by about $65 billion or 400% between 2021 and 2022. In addition, investment into China fell below $20 billion last year compared to a peak of $120 billion in 2018.
"Different types of investment are taking place," said the research organization, at the same time admitting: "it will take several years for advanced economies to achieve the objective behind their policy of 'de-risking', because China is so important to the global supply chain. "
Low production costs and the prospect of a large middle class attracted the first foreign companies to China in the late 1980s, when the country abandoned its closed economic model.
The shift comes as China's local authorities struggle to revive foreign investment after an economic pandemic and real estate crisis hurt them.
Western companies are increasing green investment in this market to give them options when sourcing geopolitically sensitive goods and commodities, such as semiconductors, as well as to reduce their dependence on China in their supply chain, the report said.
The authors of the report warn that the various types of investment are unlikely to result in a rapid decrease in exposure to China because the markets in which foreign companies invest are highly dependent on trade and investment with China itself.
