China's foreign direct investment (FDI) attained another all-time high in FY 2015, rising 6.4 percent to $126.7 billion, from $119.562 billion in FY 2014. Thus, even as concerns mount over capital flight triggered by the yuan's devaluation, this isn't an economy on the verge of losing the world's confidence.
That being said, it is worth pointing out that China has seen a long-term decline of the ratio of FDI to GDP - an indication of domestic economic maturation. In 2001, on the cusp of entering the WTO, this was about 1 to 25; by 2008, the year of the financial crisis, it had dropped to around 1 to 40; as of 2015, it stands at barely 1 to 79.
To put it in other terms: from 2001 to now, a GDP increase of 8.61 times required an FDI increase of only 2.76 times; from 2008 to now, the GDP increase of 2.67 times required an FDI increase of just 1.38 times.
(My rough figures for these calculations: GDP: 2001 - $1.161T, 2008 - $3.75T, 2015 - $10T; FDI: 2001 - $46B, 2008 - $92.5B, 2015 - $127B)
This is the natural course of a well-run, healthily growing economy moving from lower to lower-middle income levels. From here on out, to move further up into higher-middle and then genuinely higher income levels, China should continue to see a drop in the FDI/GDP ratio, meaning FDI should grow flatly as GDP also exhibits a more subdued ascent.
Next week's FY 2015 GDP figure will likely show 6.9 percent yoy growth and, more significantly in light of the markets, no substantial slowdown in 4Q, which would also be a relief considering the troubling initial 4Q assessment of China Beige Book in mid-December.
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