New Delhi, Jan 17 (IANS) The world is financially retrenching from China, with foreign direct investment (FDI) flows falling more precipitously than to the rest of emerging markets (EM), according to Robin J Brooks, Senior Fellow at the US-based nonprofit Brookings Institution.
In an article on online publishing platform Substack, he writes that the “narrative that China is impervious to US tariffs is wrong”.
“You just have to look at the massive scale of trade diversion that’s happening to see that, which is pushing China into deep deflation,” said Brooks.
Moreover, trends in foreign portfolio flows and other investment flows also point in the same direction.
“The former are flows into Chinese stocks and bonds, while the latter are bank-intermediated flows like trade finance and cross-border loans,” Brooks noted.
The “financial decoupling” predates this year’s tariffs and is a longer-running trend that emerged after the Covid-19 pandemic, said former Chief Economist at IIF, as he shared four charts to substantiate his view points. The graphs show that something clearly changed after Covid in China.
“As flows to the rest of EM rebounded, flows to China are basically flat. The only historical parallel is the 2015/6 RMB devaluation scare, but there’s obviously nothing similar going on now,” the economist argued.
The author said Russia’s invasion of Ukraine plays a role, because foreign investors fear a similar move by China on Taiwan.
“But — obviously — it’s impossible to say with certainty what’s driving capital flows in any given moment,” he added.
Meanwhile, China’s real GDP growth in 2025 is expected to be at about 2.5-3 per cent, far below the government’s stated target of around 5 per cent, raising critical questions about the true health of the world’s second-largest economy, the reliability of official statistics, a report has said.
The report from Mizzima News said that the gap is driven mainly by a sharp decline in fixed assets and property investment, persistent producer‑price deflation, and enduring weakness in domestic demand, which could slow growth further in 2026.
It cited estimates of the US-based Rhodium Group’s analysis and said Beijing’s data for the first three quarters showed 5.2 per cent year‑on‑year expansion, which also stands in sharp contrast to the independent estimate.
The report highlighted that fixed‑asset investment turned negative by mid‑2025, and a collapse in property sector investment dragged down broader capital formation.
–IANS
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