China suffers its first foreign investment deficit as US tensions and anti-spying laws spark a western exodus

• China just posted a quarterly foreign investment deficit for the first time.
• Rising tensions with the US and Beijing's crackdown on the tech sector have fueled the exodus.

China logged an unprecedented foreign direct investment deficit last quarter in the latest sign that Beijing is facing an almighty battle to revive the world's second-largest economy after years of harsh zero-COVID lockdowns.

Balance-of-payments data published by the State Administration of Foreign Exchange Friday showed that direct investment liabilities, which tracks the flow of money into non-Chinese companies, fell $11.8 billion over the three months to September 30.

Officials have released foreign direct investment figures each quarter for the past 25 years – and it's the first time the gauge has turned negative, Reuters reported.

The deficit suggests that western countries and companies are shunning China with Sino-US tensions steadily rising and new anti-spying laws spooking international investors.

In August, President Joe Biden issued an executive order that limits American investment in Chinese semiconductor and AI companies. Analysts flagged that clampdown as one factor driving the decline in foreign direct investment.

"Probably this reflects foreign firms repatriating earnings from China, whereas previously they reinvested them," Pantheon Macroeconomics' chief China economist Duncan Wrigley said, per Bloomberg.

"International firms, especially US ones, have been reconfiguring supply chains to use alternatives to China," he added.

Would-be foreign investors have also been alienated by an ongoing crackdown against non-Chinese businesses.

Beijing has banned chips made by US semiconductor giant Micron, sent state police to the Shanghai offices of US consulting giant Bain & Co., and introduced new anti-spying laws this year.

The government has also pressed ahead with harsh capital controls that make it tougher for foreigners to get their money out of the country. Emerging markets guru Mark Mobius warned in March he'd be "very, very careful investing in China" due to the restrictions.

The foreign direct investment deficit is far from the only economic headache that Beijing faces.

GDP growth has stalled this year, while policymakers are also battling the threat of deflation and soaring youth unemployment numbers.

Meanwhile, China's property sector has lurched from crisis to crisis in recent years, with embattled developer Evergrande filing for bankruptcy in August and fellow real-estate giant Country Garden defaulting on a bond payment last month.