‘Foreign capital withdrawal’ theory highly exaggerated
Given the Chinese economy’s development, there is no fear of a large-scale withdrawal of foreign capital from the country as some Western media outlets claimed. As one of the production factors, capital seeks profit, and the inflow and outflow of capital often acts as a barometer of economic vitality, potential and development.
Latest data show that among the major economies, China’s performance has been exceptional. In the first quarter of 2022, the Chinese economy grew by 4.8 percent year-on-year, which actually achieved 1.3 percent compared with the fourth quarter of 2021, and the total value of its imports and exports reached 9.42 trillion yuan ($1.38 trillion) up 10.7 percent year-on-year, accompanied by a relatively low inflation rate. This is in stark contrast to the -1.4 percent GDP growth in the US and 0.3 percent in the eurozone in the first quarter of 2022 compared with the previous quarter, and about 8 percent inflation in both economies.
The medium- and long-term development potential of China does not suggest a large-scale withdrawal of foreign capital. Whether a country, region or an industry will continue to attract foreign investment depends on its medium- and long-term development potential.
In this regard, China has four major advantages. To begin with, it has the most complete industrial chain and industrial clusters in the world, which are conducive to increasing efficiency and reducing external investment costs. Also, China is the world’s largest consumer market and trading country, and is building a unified national market. And its market capacity has a huge room for growth. So there is no reason for foreign capital to withdraw from China on a large scale.
Besides, thanks to more than 40 years of reform and opening-up, China has been improving the socialist market economy system. The country has also been making its laws, regulations and regulatory procedures more open and transparent, and improved the business environment where knowledge and talents are respected, and intellectual property rights duly protected.
As long as the withdrawal of foreign capital from China does not trigger a systemic upheaval, there is no need to be concerned.
Furthermore, after the implementation of the 14th Five-Year-Plan (2021-25), the government has held multiple meetings to study and promote the key tasks related to economic development, which have raised the confidence of enterprises, both domestic and foreign, in China’s economic development in the medium and long term.
For example, on April 26, the Central Financial and Economic Commission held its 11th meeting to discuss how to comprehensively strengthen infrastructure construction to ensure China’s mediumand long-term high-quality and sustainable development.
The withdrawal of some foreign capital from China is necessary for the healthy development of the economy. Any country, region or industry has to undergo a dynamic development process of optimizing the industrial structure and improving the quality of its industries, in order to ensure a healthy inflow and outflow of capital.
Besides, the withdrawal of capital from a country, region or industry can also be the result of industrial upgrading or restructuring. In the short term, if the inflow of capital is greater than the outflow, it reflects the benign operation of the economy and its power to attract capital. In the medium and long term, if capital inflow is greater than outflow, it means the economy is running well and its development is sustainable. But capital outflow and relocation of industries do not mean that development has become stagnant and the economy’s vitality is declining.
For example, industries such as shoe-, toy- and apparel-making generally relied on the preferential policies and low-cost advantages in the early stage of China’s reform and opening-up. But the increase in domestic and foreign investment led to intensified competition and rising costs, prompting some enterprises to relocate from China.
And there is no reason to expect the government to offer permanent preferential policies to mature enterprises or the Chinese people to keep working for low wages forever.
The discussions on Samsung and Apple relocating to India and Vietnam started in 2019. But we should not forget that the vital electromechanical industry is also the product of China’s industrial restructuring and optimization, which is facing intensified competition in the domestic market.
As long as the withdrawal of foreign capital from China does not trigger a systemic upheaval, there is no need to be concerned. As for the relocation of Samsung and Apple, which will cause some unemployment in China, the authorities should make arrangements to train those people, in order to improve their skills so they can fit into the fast evolving labor market and find appropriate employment, thus not only improving their livelihoods but also serving the country in its quest for high-quality development.