Action needed to attract foreign investment
More should be done to enable companies to take advantage of China’s vast market, industrial and supply chains, advisers say
China should roll out more robust measures to better attract and utilize foreign investment, further optimize its business environment, reduce its negative list and remove discriminatory practices, according to national legislators and political advisers.
They stressed China’s vast and expanding market, coupled with its increasing openness to foreign investment, would present new opportunities for many businesses across sectors, and its well-developed industrial and supply chains could provide a solid production foundation, further enhancing its appeal to foreign investors.
“The current global economy is grappling with various uncertainties, particularly the rise of trade and investment protectionism and unilateralism, which have severely disrupted the global decision-making of multinational corporations,” said Tian Xuan, a deputy to the 14th National People’s Congress.
China should introduce a package of well-targeted policies to shape itself as a key player in mitigating the negative impacts of instability and intricacy, so as to offer a more enabling climate and catalyze foreign investment amid a rapidly changing world, said Tian, who is also associate dean of Tsinghua University’s People’s Bank of China School of Finance.
The country saw a significant increase in the number of newly established foreign-invested enterprises last year, according to data released by the Ministry of Commerce, with 53,766 companies being set up nationwide, representing a year-on-year growth of 39.7 percent.
China’s robust economic resilience and vast potential, which is evident in its ability to weather global economic uncertainties and challenges, have established a solid foundation for a predictable investment environment, said Pan Yuanyuan, an associate researcher at the Chinese Academy of Social Sciences’ Institute of World Economics and Politics.
With a growth rate of 5.2 percent in 2023, the world’s second-largest economy not only outperformed the global estimate of approximately 3 percent growth, but it also took the lead among the world’s leading economies, she said.
China, according to the International Monetary Fund, contributed more than 30 percent to global economic growth last year, solidifying its role as a main force behind the global economy.
Going forward, the country’s allout efforts to sustain stable economic growth are an essential component that will further draw international investors, contributing to the overall attractiveness of China as an investment destination, Pan added.
It’s of great significance to not only attract foreign investment but also retain it, so optimizing the business environment and providing more streamlined and convenient services to businesses are crucial steps, said Quan Heng, a deputy to the 14th NPC and an economist at the Shanghai Academy of Social Sciences.
According to a poll released by the China Council for the Promotion of International Trade in late January, more than 90 percent of foreign businesses consider the Chinese market to be attractive, and over 80 percent expressed satisfaction with China’s business environment in 2023.
The survey conducted by the country’s top foreign trade and investment promotion agency also showed that nearly 70 percent of polled enterprises are upbeat about the prospects of the Chinese market over the next five years.
That said, improving the facilitation of foreign investment and enhancing the enabling environment for innovation will remain high on the Chinese government’s work agenda, said Jiang Ying, chair of market consultancy Deloitte China and also a member of the 14th National Committee of the Chinese People’s Political Consultative Conference.
By simplifying administrative procedures and promoting collaboration and knowledge exchange between foreign and domestic entities, China will foster a conducive ecosystem for foreign businesses to establish research and development centers in the country, and contribute to its innovation landscape, Jiang added.
Expanding market access for global investors needs to be promoted on an ongoing basis, with efforts weighed toward slashing the negative list for foreign investment and enhancing the openness of modern service industries such as education, healthcare and elderly care, Jiang added.
In late October, China took a significant step to help attract foreign investment by announcing the complete removal of restrictions on foreign investment access to the country’s manufacturing sector.
Despite the diversification of multinational companies’ global expansion strategies, China continues to be a crucial choice for top-tier enterprises thanks to its infrastructure development, technological advancements and industrial capabilities, as well as its super-sized market.
By the end of this year, Goodyear Tire and Rubber Co, a United States tire manufacturer, plans to complete the second phase of its factory located in Kunshan, Jiangsu province. This project is anticipated to yield an annual operating revenue of 700 million yuan ($98 million) with a $200 million investment.
The Regional Comprehensive Economic Partnership has helped the company reap more business opportunities to ship tires made in Chinese factories to Japan and several Southeast Asian nations, said Chris Helsel, Goodyear’s senior vice-president for global operations.
Working mechanisms to expedite the progress of major foreign investment projects will be further improved, and targeted and efficient services will be provided, so that they can focus on business operations, said Pang Ming, chief economist with global consultancy JLL China.
Looking ahead, China is expected to further consolidate and enhance its attractiveness for foreign investment, with particular emphasis on sectors such as the digital economy, green economy and high-tech industries, Pang said.
Stronger policy support should be provided and restrictions removed as appropriate, to guide more foreign investment toward such sectors as digital economy, green economy, high-tech, and medium- and highend manufacturing, as well as the central, western and northeastern regions of the country, he added.
Last year, high-tech industries accounted for 37.4 percent of total foreign direct investment, increasing by 1.3 percentage points compared with 2022 and posting a record high. Additionally, the manufacturing sector saw an increase in its proportion of FDI by 1.6 percentage points, registering 27.9 percent, data from the Ministry of Commerce showed.
China should introduce a range of incentives, including tax breaks, subsidies and research grants to attract foreign investment in the aforementioned industries, said Xu Hongcai, deputy director of the China Association of Policy Science’s Economic Policy Committee.
Moreover, governments at all levels should scale up efforts to remove any obstacles that may impede foreign businesses from operating on an equal footing, with focuses on clearing laws and regulations that hinder fair competition, eliminating local protectionism and dismantling discriminatory practices based on ownership, Xu said.
The National Development and Reform Commission, China’s top economic regulator, vowed to take steps in November to align government procurement practices, land supply, tax exemptions, qualification licensing, standard-setting, project declaration and human resources policies with international standards, in a bid to remove any discriminatory barriers and guarantee fair competition for foreign-funded enterprises.
Some foreign investors have shifted their production lines away from China in recent years, driven by cheaper costs elsewhere.
The lion’s share of foreign investors is primarily attracted by the country’s development opportunities and by its sheer size and expanding domestic market. These market-oriented investments, with a key focus on acquiring bigger market share, either grew local production in China or shipped their products manufactured overseas to China, said Zhang Yansheng, chief researcher at the China Center for International Economic Exchanges.
China’s massive market and huge demand provide foreign investors strong incentives to move facilities closer to their Chinese customers without being bogged down by relatively higher labor costs, Zhang said.
As the world’s manufacturing powerhouse, China boasts the world’s biggest and most complete industrial system, as well as full-fledged infrastructure, which reinforces its appeal for foreign companies and investors amid a flagging global economic recovery and headwinds of protectionism, he added.
As rising geopolitical tensions undermine confidence among foreign investors, the basic State policy of reform and opening-up must remain front and center no matter how the external situation may evolve, to promote high-standard liberalization and facilitation of foreign investment, Zhang said.