China

Investment & 
Operational
Climate

Although inbound FDI slowed in 2022, the People’s Republic of China (PRC) remained the number two Foreign Direct Investment (FDI) destination in the world, behind the United States. China’s initially swift economic recovery following COVID-19 reassured investors and contributed to high FDI and portfolio investments in 2021, but the continuation of the PRC’s Zero COVID policy until the end of 2022 and concerns about a lack of policy predictability lowered investor confidence, as demonstrated by FDI growth falling from 20.2% in 2021 to 8% in 2022, reaching $189bn. On the equity side, comprehensive 2022 statistics are not yet available, but the first three quarters of 2022 witnessed net foreign portfolio divestment from China’s equity markets. The PRC’s stance on Russia’s invasion of Ukraine also contributed to third country investor concerns, especially against the backdrop of growing consideration of Environmental, Social and Governance (ESG) related impacts by investors worldwide. China has continued to develop its close economic relationship with Russia since Moscow launched its war of aggression against Ukraine. Russian energy sales to the PRC have increased in both dollar and volume terms. Some PRC companies have been subjected to additional export controls upon the basis of their ties to military programs of concern in the PRC itself as well as in Russia, Iran, and the DPRK. Certain PRC companies have been subject to listings for their nexus to government sponsored human rights violations and UN sanctions evasion. U.S. sanctions connected to espionage activities, illegal, unreported and unregulated (IUU) fishing also affected some PRC companies.