Chinese Firms’ Overseas Spending Exacerbates Pressure on Renminbi
Chinese Firms Ramping Up Overseas Spending
Chinese non-financial companies invested almost $129 billion outside the country in the first 11 months of this year, according to government data released on Thursday, December 19. This 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.
Reasons behind the Surge in Overseas Spending
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.
Impact on Renminbi
The overseas spending is contributing to a gloomy outlook for the Chinese currency. Foreign firms pulled out almost $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.
Moderating the Impact
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.
Conclusion
The surge in overseas spending by Chinese firms is putting pressure on the renminbi, which is already facing challenges from foreign capital outflows and potential new tariffs. The impact on the currency may be mitigated by the use of renminbi in offshore transactions, but the outlook remains gloomy.
FAQs
Q: What is the current trend in Chinese firms’ overseas spending?
A: Chinese non-financial companies invested almost $129 billion outside the country in the first 11 months of this year, putting outflows for 2024 on track to be the highest since 2016.
Q: Why are Chinese firms investing overseas?
A: Firms are investing to reduce the risk of tariffs and get closer to customers, with the desire to develop new production bases and improve access to raw materials driving the surge in overseas spending.
Q: What is the impact of these outflows on the renminbi?
A: The overseas spending is contributing to a gloomy outlook for the Chinese currency, with foreign firms pulling out capital and a record increase in money leaving financial markets last month.
