Manufacturing News

Is mass foreign investment withdrawing from China?

There is no mass capital withdrawal of overseas enterprises in China and there will be none in the future. Although China has become a net exporter of capital, the need for foreign investment has never changed.

This year, there have been wild reports that watchmaker Citizen Precision in Guangzhou has closed, that Panasonic intends to call back two assembly lines for TV sets in China, and that Microsoft has decided to close two Nokia factories, suggesting the country was no longer a favorite destination for foreign investment.

So, are foreign firms withdrawing their capital from China?

"To assess whether there is a capital withdrawal by overseas companies, we should rely on the facts", said Shen Danyang, spokesman for China's Ministry of Commerce (MOC) when giving the following data.

In the first quarter of 2015, 5,861 new foreign-funded enterprises were established, representing year-on-year growth of 22.4 percent; the actual use of foreign direct investment (FDI) reached 34.88 billion US dollars, an increase of 11.3 percent.

China's attraction to foreign investment is changing: in 2014, 55.4 percent went to the service sector, 22 percentage points higher than to manufacturing. In addition, the share of actual use of foreign investment in the middle and west regions of China rise 0.5 percentage points to 18.1 percent.

In 2014, China's actual use of foreign investment amounted to 119.6 billion US dollars, 1.7 percent growth compared to the same period of 2013, and China saw the highest FDI inflow for the first time, exceeding the United States, Russia, Brazil and other major economics.

Generally, the inflow of foreign investment is bigger than the outflow, and there is no mass withdrawal of foreign capital, said Shen Danyang. He attributed the individual withdrawals over the past years to the upgrading of the economic structure and the change of comparative advantage.

After China became a net exporter of capital in 2014, the significance of FDI in making up for the shortage of capital has been weakened, but it does not mean its role in fueling economic development has ended, said Liu Yuanchuan, assistant dean of the School of Economics at Renmin University of China.

China's need for foreign investment has not changed, but certain aspects have changed, Shen Danyang believes.

The new Foreign Investment Industrial Guidance Catalog encourages foreign firms to invest in the fields of modern agriculture, high technology, advanced manufacturing, energy saving and environmental protection, modern service.

A survey recently released by the American Chamber of Commerce in Shanghai shows that 73 percent of foreign-funded companies have achieved profitability, and 75 percent have achieved revenue growth, 67 percent plan to expand investment in China in 2015.

"We are confident that China will continue to attract the greatest share of the world's foreign investment, and that the absorption of foreign capital will remain stable," said Shen Danyang.

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