Foreign Direct Investment and Business in China

Fnancial Environment || Trend and Prospects

Foreign direct investment (FDI) plays an important role in the development and growth of a country’s economy. With the perspective of an investing enterprise, a decent Return on Investment (ROI), an opportunity to make headway into the recipient economy’s market, and, above all, the safety of the investment are the prime considerations in making investment decisions. Therefore, the growth of FDI inflow into an economy —and its trend, in general, reflect upon the overall state of the ‘health’ of the host country’s economy.

It is understandable that Foreign Direct Investments flows into the economies that offer stable and supportive environment for the business. The size of the host economy’s market, state of it’s infrastructure, and the availability, affordability, and skill of the workforce all play a very important role in attracting the flow of Foreign Direct Investment.

Emergy Global Magnet of FDI Inward-Flow

China has emerged as the showcase example of a Model destination for FDI inflow. It has a very large consumer base with ever expanding purchasing power, an ultra modern infrastructure, skilled and well trained workforce, and, to top it all off, is the Chinese government’s zealous and persistent drive to open up it markets—from manufacturing to banking and fiance, to foreign enterprises.China is moving ahead with its commitment to reduce restrictions on Foreign Direct Investment and address difficulties facing foreign companies investing in the country. In Dcember 2019, Chinese Suprem Court passed the Laws to further protect the rights of foreign investors.

According to the transcript posted on the Ministry of Commerce’s website, China will now allow full foreign ownership of companies in more areas of the economy and will reduce the number of industries in which foreign investment was restricted or barred.

Despite the trade wars and the deep rooted concerns in some certain circles of ‘think-tanks’ in the West, China has managed to secure a place for itself as one of the most favorable destination for Foreign Direct Investment—especially in the high-tech and finance sectors.

As the Made in China 2025 (MIC 2025) project is being ushered in at a much pace faster than was expected, and the world is just coming to grasp it’s full scope and extent, it is also opening up new opportunities for investment in China. The Speedy implementation of 5 G in China and the availability of this super fast communication service in major cities is a major attraction for Foreign Direct Investment in China. It is further boosting the strength and desirability of its already expansive infrastructure—offering fast and secure communication and other related services to businesses and users.

in China and the availability of this super fast communication service in major cities is a major attraction for Foreign Direct Investment in China. It is further boosting the strength and desirability of its already expansive infrastructure—offering fast and secure communication and other related services to businesses and users.

China has already been recognized to have won the race for 5G supremacy. The country is spending enormous amount of resources and money to roll out 5G infrastructure at a blistering pace. Notice that China just introduced commercial 5G plans towards the end of October 2019, two months ahead of schedule. At the close of the year 2019, 5G networks has already covered some 50 Chinese cities. And, the mobile plans for the advanced 5G technology starts at 128 yuan ($18).

The implications of these technical advances and achievements are enormous. The economic adjustments related ups and downs aside, we are looking at unprecedented opportunities. We are in a world that is fast changing right in front of our eyes.

More than mere Foreign Direct Investment, Chinas has emerged as the magnet for hgih-tech industry, and also as the top destination for both the R & D and a hub for the transnational and multinational corporate relocation.

The US vs China – Comparing The FDI Flows

According to the 2019 World Investment Report—UNCTAD, China was ranked the world’s second largest FDI recipient after United States. China’s economy was ranked the second most attractive to multinational companies for 2017-2019, only behind the U.S. Foreign Direct Investment in China is the living Manifestation of the success of China’s Open Door Policy. With its continuous expansion of imports and exports to all over the world, it naturally becoming a logical choice and a safe-heaven fro investment.

When comparing the FDI-inFlows into two of the world’s largest economies, the United States and China, most of the time the factor that gets neglected is the dominance of the US Dollar and its effect on FDI Flows. For Multinationals and International enterprises, it becomes pertinent to direct a certain portion of their FDI allocations to the Unite States.

US Dollar’s role in the global trade settlements plays (almost 54 percent of the total SDR share) an important role in effecting the flow of FDI in the U.S. The point that needs contemplation is; what really is the Real Value of the US Dollar. Are we reaching the point where the role and value of the Chinese Renminbi and US Dollar is going to switch! But, that is topic for another time.

Realized (Utilized) FDI Flow || in Perspective

The data compiled from the Chinese Ministry of Commerce Website presents the actual sate of Foreign Direct Investment Flow into the country.

While the charts present the state of the FDI Inflow into China visually, the table at the end provides the historical data going all the way back to the year 1983. together, the information compiled here serves to give the investors and business more tools to make informed decisions.

Imports and Exports:

• In January-October 2019, China’s total import and export value reached US$3,735.63 billion, with a decrease of 2.5% year on year (the same as below). The exports were US$2037.96 billion, with a decrease of 0.2%, and the imports were US$1,697.67 billion, with a decrease of 5.1%. The trade surplus was US$340.29 billion, increasing by 34.9%.
• In October, the total value of the Chinese imports and exports was US$383.05 billion, with a decrease of 3.4%. The exports were US$212.93 billion, decreasing by 0.9% and the imports were US$170.12 billion, decreasing by 6.4%. The trade surplus was US$42.81 billion, with an increase of 29.8%.

FDI Absorption in China:

For the period January-November 2019, China’s Foreign Investment Absorption mainly presents the following Data and specifics:

• The actually utilized foreign capital maintained stable growth.
• In January-November, 36,747 foreign invested companies were newly established; the actually utilized foreign capital reached 845.94 billion yuan, increasing by 6.0% year on year (equivalent to US$124.39 billion, up 2.6% year on year, excluding the statistics of banking, securities and insurance, the same below).
• In November, the actually utilized foreign capital reached 93.53 billion yuan, increasing by 1.5% year on year (equivalent to US$13.62 billion, up 0.1% year on year).
• The foreign investment absorption of high-tech industry maintained high growth.
• The actually utilized foreign capital of high-tech industry reached 240.7 billion yuan, up 27.6% year on year, taking up 28.5%. The actually utilized foreign capital of the high-tech manufacturing industry reached 83.43 billion yuan, up 5.7% year on year.
• Specific, the actually utilized foreign capital of the pharmaceutical industry and the electronic and communication device manufacturing industry increased by 43.9% and 10.6% respectively year on year. The actually utilized foreign capital of the hi-tech service industry reached 157.27 billion yuan, up 43.4% year on year.
• Specific to services, the actually utilized foreign capital of information service, R&D and design service and scientific achievement transformation service industry increased by 28.3%, 60.7% and 67.8% respectively year on year.
• The foreign investment absorption in the eastern, central and western regions grew steadily and the foreign investment absorption in the pilot free trade zones maintained sound growth.
• The actually utilized foreign capital in the eastern, central and western regions increased by 6.0%, 5.6% and 7.3% year on year respectively. The actually utilized foreign capital in the pilot free trade zones was 121.26 billion yuan, taking up 14.3%.

FDI Trends—Comparing with 2018:

Foreign Direct Investment (FDI) into China was up 3 percent year-on-year to US $135 Billion in 2018.

For Information Purposes: The Definition of FDI

[Foreign direct investment (FDI) is a category of investment that reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise) that is resident in an economy other than that of the direct investor. The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence on the management of the enterprise. The direct or indirect ownership of 10% or more of the voting power of an enterprise resident in one economy by an investor resident in another economy is evidence of such a relationship.       [ Source: OECD ]

Historical Data of FDI inflow in China || Year 1983-2019

[Note: Data are in Billions of US Dollars]

{ Source: Ministry of Commerce Website }

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