China's Foreign Direct Investment Trends H1 2026

China's foreign direct investment (FDI) continued to contract during the first half of 2026, reflecting the ongoing challenges facing the country's investment environment. According to official data, inbound FDI fell by 5.0% year-on-year between January and June 2026, an improvement from the 8.6% decline recorded during the first five months of the year. While the latest figures indicate that the pace of contraction is easing, they also mark the third consecutive year of cumulative declines in foreign investment inflows.

The moderation follows the exceptionally weak performance observed in 2024, when FDI reached its lowest level in years. In August 2024, annual inflows contracted by 31.5%, reflecting heightened concerns over weak domestic demand, deflationary pressures, and subdued consumer confidence. Since then, investment trends have gradually stabilized, suggesting that the sharp deterioration experienced in 2024 has largely passed.

Despite this improvement, several structural challenges continue to weigh on foreign investors' sentiment. China's economic recovery remains uneven, with domestic consumption recovering more slowly than anticipated and the real estate sector continuing to face significant adjustment pressures. At the same time, concerns over corporate transparency, local government indebtedness, and the financial position of some businesses have contributed to a more cautious investment climate.

External factors are also playing an increasingly important role. Rising geopolitical tensions, stricter export controls on advanced technologies, and the growing adoption of industrial and trade protection measures by several major economies have encouraged many multinational companies to diversify their supply chains and reassess future investment strategies. While China remains one of the world's largest manufacturing bases and consumer markets, many foreign firms are increasingly adopting a "China plus one" approach, expanding production capacity in Southeast Asia or other regions while maintaining operations in China.

Nevertheless, the Chinese government continues to implement measures aimed at attracting foreign capital. Recent policy initiatives include further opening selected service sectors, improving market access for foreign enterprises, streamlining administrative procedures, and strengthening intellectual property protection. Authorities have also reiterated their commitment to creating a more stable and predictable business environment for international investors.

Overall, the latest data suggest that although the decline in foreign direct investment is moderating, China's ability to restore sustained growth in FDI will depend on both domestic economic conditions and the evolving international trade and geopolitical landscape. Continued reforms, stronger consumer demand, and greater policy certainty are likely to remain key factors influencing foreign investment decisions over the medium term.