China holds strong appeal to foreign investment

By Wang Ke, Yu Sinan, Shen Shaotie, Luo Shanshan, People’s Daily

Statistics indicate a steady growth of the scale of foreign investment China has used. Last year, China’s actual utilization of foreign investment hit a record high. In the first half of this year, the actual utilized value of foreign investment in China rose 7.2 percent from a year ago to reach 478.33 billion yuan.

It is not easy for China to see a steady increase in the utilization of foreign capital as the global transnational investment continues to fall and countries are facing greater challenges in attracting foreign investment, said Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics.

A recent report released by the United Nations Conference on Trade and Development (UNCTAD) shows that the total size of global cross-border direct investment has fallen from $1.9 trillion in 2015 to $1.3 trillion in 2018.

At present, the in-depth development of economic globalization has encountered twists and turns, including intensified trade and investment disputes, as well as unilateralism and protectionism that have seriously affected the international order and the multilateral trading system. Will this situation affect China’s utilization of foreign capital?

“There is an impact, but it is generally controllable,” said Zhang Yansheng, chief research fellow with the China Center for International Economic Exchanges.

Currently, there are indeed some export-oriented labor-intensive enterprises that are transferring their production capacity out of China. “We have to see this phenomenon objectively, analyze it rationally and keep calm,” said Zhang.

Although the transfer of production capacity to other countries could reduce costs, it also faces risks brought by uncertainties in such areas as industrial supporting capacity, economic development environment and labor quality. Taking these factors into full consideration, few foreign-funded enterprises would move out of China simply to avoid being hurt by the unilateralism and protectionist measures of the U.S.

There are more reasons for some foreign-funded enterprises to shut down factories in China and transfer their production capacity out of the country, than just to stay away from the negative impact of unilateralism and protectionist measures.

Some enterprises chose to move their production capacity out of China due to their own poor management, and some low-end manufacturing companies did so as due to rising labor and land costs in China.

The global industrial chain is dynamically adjusted and will continue to evolve with the changes in international division of labor and global industrial layout. Therefore, the migration and relocation of the industrial chain is a normal phenomenon under market economy, said Zhang, pointing out that the relocation of foreign capital from low-end manufacturing is in line with the current stage and laws of China's economic development.

Facts have proved that thanks to a series of new measures to expand opening up, the actual utilization of foreign capital in China's pharmaceutical manufacturing, electronics and communications equipment manufacturing industries in the first half of the year increased by 12.8 percent and 25 percent year-on-year, and that in information services, R&D, design services and scientific and technological achievements transformation services increased by 68.1 percent, 77.7 percent and 62.7 percent respectively. The rapid growth of foreign capital utilization in these areas indicates that China has shown strong appeal to high-level and high-quality foreign capital.

China has a well-established industrial system that can form a good industrial ecology and the scale of the industry has delivered obvious advantages. In addition, the country is producing more and more high-quality talents, who can undertake high-end manufacturing, R&D and even high-tech services, and the wage level is relatively low compared with developed countries. All these factors are favored by foreign companies, said Xing Houyuan, deputy director of the service outsourcing research center of the Ministry of Commerce.

High-quality foreign investment will stay in China and more such capital will be introduced, said Xing.

"Looking ahead, a series of measures to stabilize foreign capital will gradually take effect, and China has the basic conditions to push the utilization of foreign capital to a higher level and higher quality." Zhang said.

Major measures taken by China to expand the opening up of consumption and the manufacturing service industry have boosted the confidence of foreign companies to invest in the country.

The huge market of nearly 1.4 billion people and the strong purchasing power of more than 400 million middle-income earners constitute significant consumption power that no country can match.

China's huge market is not only expanding in size, but also rapidly upgrading its structure. The consumers need more high-quality information, medical, health, financial, cultural and other service products. In these fields, multinational companies have obvious advantages and great potential.

By continuously advancing the reform of streamlining administration, delegating powers and improving administration and cutting the number of items subject to government approval, promulgating the Foreign Investment Law, strengthening the facilitation and protection of foreign investment, and implementing a larger scale of tax cuts and reductions, China has significantly reduced the burden for foreign enterprises.

According to a 2019 report released by the World Bank, China moved up 32 spots in the Doing Business Rankings in 2018 compared with the last year.

A recent survey conducted by the American Chamber of Commerce in Shanghai indicated that more than 80 percent of U.S.-funded companies are optimistic about the prospects for development in China in the next five years.

Another survey conducted by the German Federal Foreign Trade and Investment Agency said that there are more than 5,200 German companies doing business in China. As China continues to expand opening up, more German companies will increase their investment in the country.

“We don’t have members leaving China because the appeal of the Chinese market is hard to resist,” said Harley Seyedin, president of the American Chamber of Commerce in South China.