Foreign Investment Flows to China Continue to be Chopped Down by Sputtering Sentiment

The latest PMI readings out of China suggest continued degradation in the country’s manufacturing activity. Profits throughout the Chinese industrial economy have declined throughout the first three quarters of the year, but may be showing early signs of rebounding. China will soon launch a trillion Yuan infrastructure program to expend funding for new projects until the end of 2024, but this stimulus is relatively moderate compared to the size of past recovery programs. 

Foreign investors remain wary of the wavering Chinese economy, however, continually cutting foreign direct investment, as well as inflows into mainland equities. China’s economic slowdown is crimping growth across Asia and kneecapping interest in other emerging economies within the region.

Related ETFs: iShares MSCI China ETF (MCHI)

Purchasing managers indices (PMIs) continued degradation indicates that the Chinese manufacturing sector remains a significant weakness in the country’s economy. Manufacturing PMIs calculated by both the National Bureau of Statistics (NBS) and Markit Economics slipped to 49.5 in October, breaching the index’s baseline of 50, which delineates expansion from contraction. Both of those readings were the lowest since July and compounded the latest industrial profit data in China, which showed earnings were down by -9.0% in the first nine months of 2023, compared to the prior year. It is worth noting that much of the underperformance in earnings has been weighted toward the earlier portion of the year, however, as industrial profits increased by 11.9% YoY in September alone.

Along with the manufacturing PMIs, gauges of activity in China’s services and construction sectors also weakened but did not fall into contraction territory. Still, those declines pushed the NBS’s general gauge of economic activity in China to 50.7, its lowest reading this year. In late October, Beijing’s…