Our geo-economic spiel calls for adaptive policy

China's first FDI deficit reflects global-value-chain rejigs that have given India a big chance to pitch itself as the world's next big factory. Keep policy choices flexible to aid this strategy

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For an economy that had been the apple pie of the eye of global investors for many decades, China’s deficit in foreign direct investment (FDI) in the July-September quarter of 2023 is momentous news. For the quarter, it reported an FDI deficit of $11.8 billion. This means that instead of foreign money entering China to create real assets, overseas investors pulled money out of the country last quarter. This mega reversal is a first, or at least unseen since 1998, when the country’s forex regulator began compiling this data. It reflects a de-risking underway of global value chains (GVCs) away from China, mostly in line with the ‘China plus one’ strategies adopted by global businesses in response to covid supply snarls. The pandemic had exposed over-reliance on Chinese factories as a glaring risk. At another level, it may also reflect a geopolitical rupture playing out as a kind of Cold War II, globalization as usual having taken a recent blow from the war in Europe and a flare-up in West Asia posing another threat, amid talk of a Moscow-Tehran-Beijing axis looking to toppl