In yet another setback for China’s already beleaguered economy, foreign firms are pulling their earnings out of the country. American, Japanese, and European companies—some long-established in China—have rethought former plans to modernize and expand and have begun to send their profits home or elsewhere in Asia and even further afield.
The trend has been developing for some time. Its causes are diverse, some immediate, some more fundamental, but either way, China’s economic recovery looks even more problematic because of it.
The outflow has been gaining momentum for over a year. During the 18 months through September, the most recent month for which data are available, foreign companies pulled a total of $160 billion of earnings out of the country. Withdrawals in just the summer quarter were so large that they overwhelmed foreign investment inflows so that for the first time in a very long time, China suffered a net outflow of foreign-based funds—to the tune of $11.8 billion. There can be little doubt that these significant funds flows have contributed to the almost 6 percent decline that China’s yuan has suffered relative to the U.S. dollar so far this year….
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