Trade frictions present valuable opportunity
The United States has launched a trade attack against China this year, and China has resolutely fought back. Some observers have said that one of the intentions behind the US move is to crack down on the foreign direct investment into China, in order to impede China’s industry upgrading and squeeze China out of the global value chain.
Yet statistics show that China’s introduction of foreign investment has not declined but instead increased since the breakout of frictions between China and the US. According to the Ministry of Commerce’s statistics, China had 35,239 newly established foreign-invested enterprises nationwide from January to July this year, an increase of 99.1 percent year-on-year. During the same period, China’s actual use of foreign capital was $76.07 billion, which saw a 5.5 percent increase year-on-year. In particular, the US investment in China increased 29.1 percent in the first half of 2018, which was higher than the average level.
According to the American Chamber of Commerce in China’s Business Climate Survey Report 2018, about 60 percent of the enterprises interviewed regard China as one of their three major investment destinations, and about one-third of the enterprises interviewed planned to expand their investment in China by 10 percent or more. Likewise, the European Union Chamber of Commerce in China’s Business Confidence Survey 2018 found that more than half of its members plan to expand their operation in China.
Why has foreign investment in China grown rapidly despite the trade tussle between China and the US? There are several reasons. The first is that China’s reform and opening-up has accelerated recently. China has changed the pressure of the US tariffs into the driving force for pushing forward reform and opening-up. Since the beginning of this year, the Chinese government has launched a series of major reform and opening-up measures in order to create a more favorable business environment to boost market confidence and encourage multinational enterprises’ investment in China. China’s business environment has continuously improved due to these measures.
Second, China’s domestic market is expanding. According to data from the Ministry of Commerce, China’s total retail sales of consumer goods was 18 trillion yuan, a year-on-year rise of 9.4 percent. It is expected that the middle-income group will account for 70 percent of China’s overall population by
2030. Moreover, China’s emerging middle-income group is more accepting of new products.
China’s growing consumption power is prompting more multinational enterprises to invest in China. Recently the US electric carmaker Tesla decided to invest in Shanghai because of China’s ever-increasing new energy vehicle market. The Chinese Economy and Japanese Enterprises Whitepaper 2018 compiled by the Japanese Chamber of Commerce in China also mentioned that Japanese enterprises’ investment in services and retail industries is increasing. The stable development and vitality of China’s domestic market will increase China’s attractiveness to cross-border capital.
Third, China’s whole industry chain has strengthened. The major appeal of China for foreign investment is China’ industrial system with complete industries, strong production capacity, sound infra- structure construction and industry support system. China’s complete industry chain can help enterprises quickly achieve commercialization of their technological achievements and remarkably lower their costs, which effectively attracts foreign direct investment.
Fourth is the deepening of global cooperation. The US has launched its trade attack against not only China but almost the entire world. Under the US’ global trade bullying policy, economies should enhance policy coordination and accelerate the process of promoting trade and investment liberalization. Trade and economic interactions between China and these trade partners is conducive to stable global economic and trade situations and stabilizing foreign investors’ confidence in investing in China.
Fifth, the US has seriously undermined its own enterprises’ interests by launching trade assault against other countries. Seventy percent of
China’s export products are produced by foreign enterprises in China, and the US imposing heavy tariffs on China’s export products will definitely lead to a profit decline of these foreign enterprises including the US enterprises, and further undermine the US enterprises’ competitiveness.
In the short term the US’ trade blows targeting China will cause a loss to China’s economy, but in the long run, it will promote China’s industrial upgrading. China’s everexpanding market, ever-upgrading industry chain and ever-improving business environment will continuously attract foreign investment.
The US’ unilateralism will have a negative influence on the Chinese economy, but it will also have a negative impact on the global economy. China should continue to transform the US pressure into a driving force for continuously advancing reform and opening-up. If so, trade frictions will not frustrate China’s development but instead be a valuable opportunity to push it forward.