China’s Shift in FDI and US Tariffs: Implications for Forex Markets

The foreign direct investment (FDI) scenario in China has undergone transformations recently.

These changes began in 2022 when China transitioned from being a recipient of FDI to becoming an exporter of FDI. In 2024, the inflow of FDI plummeted to $4.5 billion. This decline indicates a trend towards repatriating capital and a decrease in the confidence of investors. Simultaneously, the focus of China’s investment (ODI) previously on developed nations is now shifting towards emerging markets with a keen emphasis on investments in metals and transportation sectors.

During the term of the Trump administration, in the United States there have been trade policies put in place. This includes a 20% tariff on goods imported from China and increased regulations on maritime logistics and shipbuilding sectors. The implementation of the “America First Investment Policy” is expected to reduce investment opportunities, between both countries.

Experts anticipate that these trade tariffs will likely cause a slowdown in China’s economic growth rate in the future due to the complexities involved in reorganizing supply chains amidst China’s strong presence in global shipping networks and the ongoing challenges of capital outflows and uncertain policies impacting the Chinese yuan (CNY). Nonetheless, efforts to promote the use of renminbi could offer some stability to markets in the medium term.

Traders, in the currency market are keeping a close eye o these changes. The fluctuations, in investment trends and trade regulations could affect the currency exchange, commodities and stock markets worldwide influencing the risk perception.