FDI en­ters new struc­tural era

Na­tion’s in­vest­ment en­vi­ron­ment go­ing through fun­da­men­tal change

China Daily (Hong Kong) - - BUSINESS - By LI JI­ABAO li­ji­abao@chi­nadaily.com.cn

China’s for­eign di­rect in­vest­ment en­tered an era of re­struc­tur­ing and op­ti­miza­tion in 2013, ex­perts said on Fri­day.

“China’s FDI is see­ing a trend of re­struc­tur­ing this year with growth slow­ing to a mod­er­ate pace,” said Yang Liqiang, a re­searcher at the In­sti­tute of In­ter­na­tional Econ­omy of the Univer­sity of In­ter­na­tional Busi­ness and Eco­nom­ics in Bei­jing. “The share of FDI in­flow into the man­u­fac­tur­ing and real es­tate sec­tors de­clined, while that into the fi­nance and R&D sec­tors went up.”

Yang added that China re­mained a top in­vest­ment desti­na­tion for multi­na­tional cor­po­ra­tions, but that the coun­try’s share of FDI in­flow against the to­tal FDI in­flow of de­vel­op­ing economies de­clined in re­cent years. The na­tion “needs to forge an up­graded in­vest­ment en­vi­ron­ment to keep steady FDI in­flow,” he added.

Last year, China was the world’s sec­ond- largest FDI re­cip­i­ent, with FDI in­flow drop­ping by only 2 per­cent year- on- year to $ 121 bil­lion, com­pared with the 18 per­cent drop seen for global FDI, ac­cord­ing to the United Na­tions Con­fer­ence on Trade and De­vel­op­ment’s 2013 World In­vest­ment Re­port.

Zhang Shix­ian, a re­searcher at the In­sti­tute of In­dus­trial Eco­nom­ics of the Chi­nese Academy of So­cial Sciences, said that China’s FDI has seen a golden era since 1992 when the coun­try opened its econ­omy to global in­vest­ment. FDI in­flow into the coun­try also wit­nessed a growth pe­riod from 2001 to 2012 af­ter China joined the World Trade Or­ga­ni­za­tion and opened up its do­mes­tic mar­ket.

“China’s FDI is now go­ing through a phase of struc­tural op­ti­miza­tion, with the in­tro­duc­tion of the ‘neg­a­tive list’ in the China (Shang­hai) Pi­lot Free Trade Zone. FDI in­flow will not drop in the short term, but its struc­ture will im­prove,” Zhang said.

He added that China’s in­vest­ment en­vi­ron­ment is chang­ing fun­da­men­tally and that the coun­try’s huge mar­ket has out­weighed its role as the world’s fac­tory in the past decades.

“De­spite ris­ing costs at home, new FDI in­flows from now on, which are fo­cused on the high­end man­u­fac­tur­ing and ser­vice sec­tors, are less sen­si­tive to cost in­creases as they are more ef­fi­cient and aim to grab a share of the ex­pand­ing Chi­nese mar­ket,” Zhang said.

Long Guo­qiang, a re­searcher at the De­vel­op­ment Re­search Center of the State Coun­cil, echoed that view.

“Our tra­di­tional ad­van­tages are chang­ing. Low costs in the past three decades drew huge amounts of for­eign in­vest­ment into China. How­ever, ris­ing wages drove some transna­tional cor­po­ra­tions to move their Chi­nese plants into lower-cost ar­eas,” Long said.

“But we have a new ad­van­tage for global in­vestors: a huge and ex­pand­ing do­mes­tic mar­ket and com­pet­i­tive costs, which are quite low over­all. Transna­tional cor­po­ra­tions are in­creas­ingly eye­ing China’s hu­man re­sources due to their im­prove­ment. Our in­fra­struc­ture is even bet­ter than in some de­vel­oped economies, and the huge lo­cal mar­ket is be­com­ing more at­trac­tive to global in­vestors,” Long said.

He added that the gov­ern­ment needs to deepen re­forms to at­tract global in­vest­ment. Those moves should in­clude open­ing up the ser­vices sec­tor as well as re­struc­tur­ing the man­u­fac­tur­ing in­dus­try.

Shang­hai’s pi­lot FTZ and China’s talks on in­vest­ment pacts with the United States and the Euro­pean Union also aim to boost in­vest­ment into the coun­try.

“As China stream­lines pro­ce­dures, FDI will con­tinue to see struc­tural changes. The ser­vices and agri­cul­tural sec­tors will see in­creased shares of FDI in­flows, while the cen­tral re­gion will likely out­pace the east­ern and western re­gions,” said Zhang Xiaojing, a re­searcher at the Univer­sity of In­ter­na­tional Busi­ness and Eco­nom­ics.

Zhang added that for­eign in­vest­ment in China’s east­ern ar­eas is be­ing moved to other re­gions, es­pe­cially in la­bor­in­ten­sive sec­tors, due to the rapidly grow­ing la­bor costs.

The gov­ern­ment should en­cour­age the move of those busi­nesses into the na­tion’s in­land ar­eas and re­new re­gional pro­duc­tion net­work projects with South­east Asian economies, she added.

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