Language : English 简体 繁體

Foreign Companies Meet A “Silver Age” in China

Apr 08 , 2015
  • Ding Yifan

    Deputy Director, China Development Research Center

Since 2014, some well-known multinationals like Citizen, Panasonic, and Nokia, etc. have decided to withdraw from China, causing some people concern about the outflow of foreign capital.

The withdrawal of a few enterprises from China does not necessarily mean that China’s ability to attract foreign investment is declining.

By the end of January 2015, Global Investment Trends Monitor published by the United Nations Conference on Trade and Deficit (UNCTAD) points out that the absorption of foreign capital by China in 2014 increased by 1.7% over the same period (excluding the data from banks, securities, and insurance areas). The inflow of foreign capital into China mainland was the highest in the world for the first time. Next to this came the inflow of foreign capital into Hong Kong. Evidently, the capital flown into Hong Kong targeted Mainland China. The amount of foreign capital attracted by Mainland China and Hong Kong totaled more than twice as much as that by the U.S. in 2014.

In recent years, China has witnessed rising costs of labor and land, slow economic growth, the poor management of some foreign-capital enterprises, and a few factory closings due to a few multinationals adjusting their business in China. But, the withdrawal of these enterprises from China does not have much influence: on the one hand, most of them are low-end assembling manufacturers that China needs to restructure at the next stage; on the other hand, Chinese local enterprises have developed fast in these areas, which has increased in competitiveness with overseas enterprises.

In January 2015, China’s absorption of foreign capital showed good momentum. In the same month, newly established foreign-capital enterprises reached 2266, a 31.8% increase over the same period; the contractual value of foreign investment came to $33.21 billion USD, up by 126.2% over the same period; the actually used foreign capital valued at $13.92 billion, a year-on-year growth of 29.4%.

China’s ability to attract foreign capital has improved compared with the previous years. For example, in January of 2015, foreign investors were very active in the high-end manufacturing areas. The foreign capital actually used by transportation equipment manufacturing increased by 103.3%. The contractual and actually used foreign capital in computerized communication equipment and other electronic equipments rose by 19.5% and 48.8% respectively.

Besides, the service industry has become area of grow for attracting foreign capital. Since 2012, the ratio of foreign capital used by Chinese manufacturing has clearly declined while the service industry has shown strong growth in using foreign capital. In recent years, the Ministry of Commerce and related sectors jointly promoted a series of opening up and utilization of foreign capital in the service industries. For example, Beijing, Tianjin, Shanghai, Jiangsu and other provinces and cities embarked on establishing totally foreign-owned pilot hospitals and cut restrictive access on foreign investment in road transportation and other related areas.

In 2014, China’s absorption of foreign capital shifted from manufacturing-based structure to service industry-based structure. The proportion of foreign capital attracted by the service industry rose by 55.4%, 22 points higher than that of the manufacturing industry and became a new growth spot in attracting foreign capital. The figure of January of 2015 shows that the foreign capital actually used by the service industry accounted for 66% of the total amount of foreign capital in China.

In 2015, China will deepen its reform of foreign investment management, unify the rules and regulations on both domestic and foreign capital and promote the transparency and facilitation of investment climate. China will revise and release the Guiding Catalogue of Industries for Foreign Investment, greatly lifting the access restriction on foreign investment. Relevant sectors will be promoted to enhance their capability of governance by laws and law enforcement, giving foreign-capital enterprises equal protection and fair law enforcement. China will also investigate and respond to foreign business concerns regarding the investment climate and safeguard the legitimate rights and interests of investors and enterprises.

2015 China Business Climate Survey released by AmCham-China also shows their confidence in investment in China. The survey points out that although doing business in China involves more and more challenges, over 60% of the enterprises still take China as one of the three priorities for investment in the world. Foreign-capital enterprises will continue to adjust their operations in China to adapt to the environment. They believe that transforming into an entirely new economic mode is difficult but will eventually succeed, and foreign-capital enterprises will also gain fairer treatment.

At the press conference on European Business in China Position Paper 2014/2015 in September of 2015, Mr. Wuttke, President of the European Union Chamber of Commerce in China, said that if those irreplaceable and favorable conditions like high speed economic growth, low cost input, and weak market competition had long supported the “Golden Age” of the foreign-capital enterprises, now China’s annual GDP growth rate would reach 6%-7% in the future and China’s huge economic scale still could guarantee unlimited business opportunities for them. With China comprehensively deepening its reform, foreign enterprises in China will meet a long-term and sustainable “Silver Age.”

Since China can still maintain a relatively high economic growth and enjoys enormous market growth potential, foreign enterprises can still benefit from China’s high growth if they can find the hot spots within China’s economic growth model.

Electronic sales and network finance have been the highlights of China’s economic development and have taken the lead in the world. The plan to incorporate information networks into industrial enterprises and industrial manufacturing by 2025 are important for China’s future. If foreign enterprises are better experienced in the area of applying networks in industry, they should be able to find suitable Chinese partners and apply their experiences in the market.

Foreign services enterprises, especially those related to manufacturing, should have a bigger development space in China. Chinese manufacturing enterprises need to improve their energy efficiency, reduce carbon dioxide emissions, and improve their technology. The enterprises that can provide these services will certainly find a large market.

Financial services companies also have a development space because China will gradually deregulate its capital control. In particular, free trade zones in Shanghai and other places have given a lot of experimental opportunities to foreign enterprises.

With China’s advancement of its state-owned enterprise reform in the second half of 2015, foreign enterprises can further participate in the recapitalization of Chinese state-owned enterprises, which can tap a bigger Chinese market for them.

You might also like
Back to Top