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5 White Paper on the Business Environment in China
1.3 eForeignInvestmentEnvironmentinChina
(in 2013)
Recent developments of money continue to be invested in China.
Reuters observes that “What keeps the money coming to
IN THE YEAR from November 2011, Foreign Direct
Investment (FDI) into China dropped 11 out of 12 China is a steady shift away from cheap assembly lines to high
months, with only minimal growth in May 2012 bucking the value-added production and from volatile external demand to
trend.1 the spending power of a new mainstream consumer class that
analysts at McKinsey reckon will rise 10-fold between 2010
e Chinese government “has blamed the slump on the and 2020.”6
slowdown in global economic growth, the prolonged European
debt crisis and rising costs and weak demand at home.”1 Accordingly, “Vietnam, Bangladesh, Indonesia and ailand
combined managed to snag only $141.6 billion in FDI between
e South China Morning Post’s Victoria Ruan reported in them from 2007 to 2011, despite being repeatedly touted as the
November 2012 that “For the rst 10 months [of 2012] FDI places to which manufacturers eeing China ock.”6
is down 3.45 percent at US$91.7 billion [while] outward
investment by non- nancial Chinese rms rose 25.8 per cent e continuing evolution of FDI in China has led the
in the 10 months to US$58.2 billion.”2 nation to capture “$625 billion [since 2007], based on data
from United Nations agency, UNCTAD.”6
“ e steady decline in foreign investment,” she observes,
“Highlights the challenges facing Beijing’s new leaders as they AmCham South China members have been at the fore-
cope with a global economic downturn while rebalancing the front of this transition from labor-intensive manufacturing to
domestic growth model as rising labor costs begin to hurt the higher value-added services.
country’s manufacturing competitiveness.”2
In addition to focusing mainly on the manufacture of elec-
A more detailed breakdown of FDI shows that “Services trical equipment, appliances and other higher-tech products,
sector in ows in the rst 10 months of the year were $43.7 in 2013 fully 80.7 percent of State of Business study partici-
billion, down 1.8 percent on a year ago,” while “Manufactur- pants indicated that their primary business focus was the pro-
ing sector in ows meanwhile stood at $40.4 billion between duction of goods or services for the Mainland China market,
January and October, down 7.3 percent versus the same pe- rather than for export.
riod in 2011.”3
Furthermore, study participants report that “Investment
Curiously, the year-on-year decline in “newly approved in new China facilities” is among their top business priorities,
foreign-invested enterprises” was signi cantly higher, at 10.49 in addition to reporting a more than 40 percent increase in
percent, than the drop in overall investment volume.4 3-year investment budgets over last year’s results. Both these
points suggest that companies are beginning to resume ex-
is suggests that FDI in 2012 has been more concentrat- pansion plans that had been put on hold following the global
ed in large projects, and that fewer Small and Medium-sized
Enterprises (SMEs) are seeing value in entering—or expand- nancial crisis.
ing within—the Chinese economy.
e Bad
Contemporary to the Ministry of Commerce’s relatively
gloomy FDI gures, the State Administration of Foreign Ex- Bloomberg reports that “Companies are less optimistic
change announced that “it would cancel the complex review about their business prospects in China than they were three
procedures related to capital ows and currency exchange years ago. China’s recent economic slowdown is one reason
quotas of foreign enterprises,” a move which Standard Char- for that, but so is a rising concern about favoritism given to
tered economist Li Wei suggested “will encourage more for- Chinese companies in the market.”7
eign direct investment.”5
Similarly, “Many companies say that they can only expand
Still, Li cautioned, “it’s yet to be seen whether the weaken- so far into certain sensitive industries, such as oil and informa-
ing FDI trend will reverse in the short term because it hinges tion technology, before hitting a ceiling in which the govern-
more on the domestic and overseas economic situation.”6 ment makes it di cult to expand.7
e Good A Foreign Policy opinion piece observes that, “Although
there are individual exceptions, U.S. companies’ share of the
Despite increasing wages—and thus ever-shrinking Chinese market has been shrinking. Industrial output by for-
competitiveness for low-end manufacturing—large amounts eign-invested rms in China as a share of the national total
32
1.3 eForeignInvestmentEnvironmentinChina
(in 2013)
Recent developments of money continue to be invested in China.
Reuters observes that “What keeps the money coming to
IN THE YEAR from November 2011, Foreign Direct
Investment (FDI) into China dropped 11 out of 12 China is a steady shift away from cheap assembly lines to high
months, with only minimal growth in May 2012 bucking the value-added production and from volatile external demand to
trend.1 the spending power of a new mainstream consumer class that
analysts at McKinsey reckon will rise 10-fold between 2010
e Chinese government “has blamed the slump on the and 2020.”6
slowdown in global economic growth, the prolonged European
debt crisis and rising costs and weak demand at home.”1 Accordingly, “Vietnam, Bangladesh, Indonesia and ailand
combined managed to snag only $141.6 billion in FDI between
e South China Morning Post’s Victoria Ruan reported in them from 2007 to 2011, despite being repeatedly touted as the
November 2012 that “For the rst 10 months [of 2012] FDI places to which manufacturers eeing China ock.”6
is down 3.45 percent at US$91.7 billion [while] outward
investment by non- nancial Chinese rms rose 25.8 per cent e continuing evolution of FDI in China has led the
in the 10 months to US$58.2 billion.”2 nation to capture “$625 billion [since 2007], based on data
from United Nations agency, UNCTAD.”6
“ e steady decline in foreign investment,” she observes,
“Highlights the challenges facing Beijing’s new leaders as they AmCham South China members have been at the fore-
cope with a global economic downturn while rebalancing the front of this transition from labor-intensive manufacturing to
domestic growth model as rising labor costs begin to hurt the higher value-added services.
country’s manufacturing competitiveness.”2
In addition to focusing mainly on the manufacture of elec-
A more detailed breakdown of FDI shows that “Services trical equipment, appliances and other higher-tech products,
sector in ows in the rst 10 months of the year were $43.7 in 2013 fully 80.7 percent of State of Business study partici-
billion, down 1.8 percent on a year ago,” while “Manufactur- pants indicated that their primary business focus was the pro-
ing sector in ows meanwhile stood at $40.4 billion between duction of goods or services for the Mainland China market,
January and October, down 7.3 percent versus the same pe- rather than for export.
riod in 2011.”3
Furthermore, study participants report that “Investment
Curiously, the year-on-year decline in “newly approved in new China facilities” is among their top business priorities,
foreign-invested enterprises” was signi cantly higher, at 10.49 in addition to reporting a more than 40 percent increase in
percent, than the drop in overall investment volume.4 3-year investment budgets over last year’s results. Both these
points suggest that companies are beginning to resume ex-
is suggests that FDI in 2012 has been more concentrat- pansion plans that had been put on hold following the global
ed in large projects, and that fewer Small and Medium-sized
Enterprises (SMEs) are seeing value in entering—or expand- nancial crisis.
ing within—the Chinese economy.
e Bad
Contemporary to the Ministry of Commerce’s relatively
gloomy FDI gures, the State Administration of Foreign Ex- Bloomberg reports that “Companies are less optimistic
change announced that “it would cancel the complex review about their business prospects in China than they were three
procedures related to capital ows and currency exchange years ago. China’s recent economic slowdown is one reason
quotas of foreign enterprises,” a move which Standard Char- for that, but so is a rising concern about favoritism given to
tered economist Li Wei suggested “will encourage more for- Chinese companies in the market.”7
eign direct investment.”5
Similarly, “Many companies say that they can only expand
Still, Li cautioned, “it’s yet to be seen whether the weaken- so far into certain sensitive industries, such as oil and informa-
ing FDI trend will reverse in the short term because it hinges tion technology, before hitting a ceiling in which the govern-
more on the domestic and overseas economic situation.”6 ment makes it di cult to expand.7
e Good A Foreign Policy opinion piece observes that, “Although
there are individual exceptions, U.S. companies’ share of the
Despite increasing wages—and thus ever-shrinking Chinese market has been shrinking. Industrial output by for-
competitiveness for low-end manufacturing—large amounts eign-invested rms in China as a share of the national total
32
