China Center Chart of the Week: China’s FDI numbers are not adequate for gauging foreign investor sentiment

This exclusive China Center Chart of the Week shows quarterly, year-on-year growth rates for Utilized FDI originating from Hong Kong and elsewhere through Q1 2015. Utilized FDI is the amount of “realized investment” (as compared to Contracted FDI, which refers to the amounts of investment stated in “approved” contracts, amounts that may or may not be actually invested).

The table shows Utilized FDI by origin of funds for 2014. Total FDI from all destinations increased by 1.7 percent to $119.6 billion in total for the year. However, Hong Kong-originated FDI accounted for 72 percent of total FDI in 2014 and drove almost all the FDI growth in 2014.

Given the propensity of Chinese firms to register holding companies in Hong Kong, sequester cash there, and conduct their major inbound and outbound financial operations from Hong Kong, it is highly questionable whether China’s Utilized FDI data present an accurate picture of FDI flows coming in from truly foreign firms, much less an accurate view of FDI overall.

Download the report for specific details, included growth rates from other regions.