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China’s President Xi has emphasised the importance of stable and healthy US-China relations during a meeting with foreign CEOs in Beijing. He stated that these relations should be based on mutual respect and cooperation.
Xi assured that China will continue to be a safe and attractive investment destination for foreign firms, promising them fair access to production factors. He advised against obstructing others, indicating that such actions ultimately hinder one’s own progress.
Foreign Investment Sentiment And Executive Presence
Prominent leaders from companies such as BMW, Mercedes, Qualcomm, FedEx, and Inter IKEA were present at the meeting. Foreign direct investment (FDI) into China plummeted over 27% in 2024, the largest decline since the 2008 financial crisis.
The remarks made by Xi reflect a broader effort to soothe foreign investor concerns amid rising geopolitical uncertainties and falling inbound investment. His message was clear: cooperation yields better returns than confrontation, especially in the context of trade and business access.
The sharp contraction—more than 27 percent—in FDI into China so far this year marks an unmistakable loss of momentum for overseas capital flows. This is no small event. It echoes patterns seen during historic periods of global financial stress, such as the 2008 crisis. Unlike cyclical dips in investment, disinvestment on this scale points to deeper-rooted doubts about long-term returns and policy predictability.
Impacts On Market Behavior And Derivative Flows
From our perspective, the tone used by the Chinese leadership strongly hints at a recalculation in how business visibility and operational consistency might be extended to international firms. Xi’s statements also infer a veiled criticism—those putting up barriers to economic cooperation may find themselves cornered by their own restrictions. Seen in context, this reads less as a warning and more as an invitation for reengagement under Beijing’s terms.
Now, when decision-makers at firms digest this messaging—particularly those operating in markets with high exposure to macro narratives—they tend to draw back, reassess their hedging strategies, and look again at implied vol curves. Lower foreign confidence in Chinese assets, reflected in declining FDI, is likely to ripple across derivatives pricing tied to China’s data releases or asset classes with high correlation, such as EMFX or commodities with Chinese demand weights.
The presence of C-suite executives from multinationals like FedEx and Inter IKEA signals that the Chinese government is making active outreach to stabilise sentiment. This is not a neutral gesture. Having established players visibly engaged helps us infer the importance of form over just outcomes. Subtextually, it suggests an attempt to steady expectation, especially given ongoing concerns about capital repatriation and IP protections.
Derivatives traders should give careful attention over the coming weeks to capital outflow data, trade balances, and any guidance from sector-level regulators in China, particularly touching on technology, logistics, or automotive manufacturing. These could shape forward pricing expectations if seen as leaning toward more predictable access or preferential treatment for long-committed investors.
We are watching implied volatility in indexes tied to the region. Recent remarks have taken out some of the downside tail, but not necessarily increased the probability of upside surprises. Pricing looks hesitant, rather than reactive. Volume tells us that large positioning is on hold, not reversing.
Let’s also be clear—there is no ambiguity in the 27% drop. It’s not marginal noise caused by short-term cycles. That level of capital retreat indicates investors demand clearer signals before re-entry. Fixed-income traders with exposure to local currency bonds or related swaps might keep a close eye on payment flows and reserve accounting changes, especially from the PBOC.
In conversations during our own calls this week, the recurring view is that market participants seek clarity on procedural fairness, not just high-level affirmations. Traders and positioning desks are increasingly placing weight on policy implementation dates rather than just the speeches.
Therefore, directional trades should be managed with a preference for what we can observe on the books. One cannot rely solely on political gestures. Current options flows suggest clients are rotating out of shorter-dated exposure and moving towards longer expiries where possible. This implies more patience, but also more risk appetite—only if backed by analytics.
Expect more focal data from inflows to benchmark products, trade surplus trends, and official responses to U.S.-based company concerns. Then, recalibrations around exposure to Asian equity indexes and FX pairs such as AUD or KRW may follow.
We continue to monitor liquidity conditions around policy reaction windows. Premium paid for certainty is rising slightly across assets. And so, activity across swaps and futures desks should remain dynamic until verifiable shifts are confirmed.
