Foreign direct investment in China optimizes, upgrades

by Xinhua writer He Xiyue

BEIJING -- For some time, certain critics have fixated on the isolated statistic of a "decline in foreign direct investment (FDI)" to undermine confidence in the Chinese economy. The reality is that FDI in China is optimizing and upgrading.

It's misleading not to consider these figures within a global context, as a decline in FDI is not unique to any single country.

According to the United Nations Conference on Trade and Development's Global Investment Trends Monitor, excluding higher values in a few European conduit economies, global FDI flows had dropped by 18 percent in 2023, affected by economic uncertainty and rising interest rates. Moreover, India's FDI inflows fell by 47 percent, ASEAN saw a 16 percent decline and the United States experienced a 3 percent drop.

From January to July 2024, China's actual use of FDI exceeded 500 billion yuan (70.2 billion U.S. dollars). Affected by a high base in the same period last year, the scale of investment attraction decreased year on year, but remained at a relatively high level in the context of the past decade. In particular, nearly 32,000 foreign-funded enterprises were newly established in China in the first seven months, a year-on-year increase of 11.4 percent, according to official data.

In an era of global economic instability and rising protectionism, a dip in FDI is expected, particularly from a high base. Yet, China remains focused on finding opportunities amid challenges. As the country fosters high-quality development, foreign investment is shifting from short-term "hot money" to long-term commitments with stronger institutional and innovation capacities.

For instance, in April this year, Volkswagen announced an investment of 2.5 billion euros (about 2.79 billion U.S. dollars) to expand its innovation hub in east China's Anhui Province, following the establishment of Volkswagen's research and development center in Anhui. Meanwhile, German healthcare and agribusiness giant Bayer has pledged an investment of 20 million euros to establish the China Center for Innovation & Partnership in Shanghai.

High-tech manufacturing is a key driver of FDI in China. In the first seven months of 2024, the proportion of actual FDI in high-tech manufacturing increased by 2.6 percentage points from 2023. This reflects a continued optimization of the investment structure and aligns with the country's push for new quality productive forces.

China's commitment to high-level opening up provides ample opportunities for foreign investors to engage in its industrial transformation, consumer market growth and urban development, allowing them to gain significant benefits.

A recent Harvard Business Review article listed four key strengths of China's economy, namely its innovation ecosystem, investment in the Global South, ultra-competitive markets and 1.4 billion consumers, and suggested that leaders of multinational corporations seize opportunities in China.

Tesla's deep involvement in China's new energy transformation is a case in point. In May 2024, the U.S. electric carmaker broke ground on a megafactory in Shanghai to manufacture energy storage batteries.

Short-term fluctuations should be assessed dynamically. Foxconn's recent announcement of a 1-billion-yuan investment to set up a new business headquarters in central China's Henan Province serves as a clear example.

Adding to its advantages of a stable environment, advanced infrastructure and a vast market, China is intensifying efforts to attract foreign investment. China has vowed to further relax restrictions on foreign investment by completely abolishing entry barriers in the manufacturing sector, while accelerating the opening up of sectors such as telecommunications, education and healthcare services.

With a steadfast commitment to high-quality development and high-level opening up, as well as a willingness to share its growth with global partners, China will remain a leading destination for foreign investors. As many foreign executives believe, the next China is still China.