Page 36 - 2018 White Paper on the Business Environment in China
P. 36
8 White Paper on the Business Environment in China
Chinese that foreign companies are not necessary U.S. accounted for 1.5% of total inbound FDI into China
for China to prosper in the future. Some of China’s in 2015 (or around 0.045% of total investment in China
major initiatives appear designed to displace rather in 2015) and for 4.5% of the cumulative FDI into China
than to cooperate with foreign companies. As a result, from 1979 to 2015 (the NBS cumulative U.S. FDI and
it is becoming more and more crucial that foreign U.S. Department of Commerce investment position of
companies, governments, chambers of commerce, and U.S. Affiliates in China numbers are similar) (Enright, The
other business groups “make the case” for the value Impact of U.S. 14). Many foreign companies talk about
that foreign investment and foreign companies bring their total investment and their employment in China,
to China. which may be large in corporate terms, but tend to be a
drop in the bucket when compared to China’s economy.
Unfortunately, the approach by foreign companies, Increasingly, “making the case” for the value brought to
governments, and business groups is often framed in China using such numbers is a losing proposition.
legalistic terms like “international norms,” or “international
obligations,” or “reciprocity,” or in general statements However, there are other numbers that are more
about the “good of China.” Unfor tunately, these realistic, and more helpful, in terms of describing the
approaches not only don’t work, they are often met with contribution of U.S. and other foreign companies to
incomprehension on the Chinese side. After all, In China China. After all, it is not the investment flows, but the
“norms” and “obligations” are seen to be a means not an operations of FIEs / FAs on the ground that contribute
end. And the notion that foreigners, particularly those to China’s economy. NBS reports that in recent years all
with a profit motive, should be telling Chinese officials FIEs / FAs in China have accounted for over 20% of sales,
“what is good for China” can be seen as misguided or assets, employment, and value added (GDP contribution)
condescending. in the industrial sector. Since the industrial sector is still
around half of China’s economy, industrial FIEs / FAs
After 20 years of working with major international alone account for around 10% of China’s GDP, which in
companies and foreign governments on their China 2016 would mean on the order of US$1.1 trillion. And
strategies, we know that if foreign companies, while NBS estimate of U.S. FDI inflows in 2014 were
governments, and business groups want better access US$2.4 billion, the Department of Commerce’s estimate
to China, they have to show through specific analysis the of the value added in China (GDP contribution) of just
economic benefits they bring to China. Hard-edged self- Majority-owned U.S. Foreign Affiliates (MOUSFAs) was
interest is that has driven China’s approach to foreign US$66 billion, or 27.5 times the inward investment flow.
investment since the initial opening on 1979, and that is
still very much true today. It is only a slight exaggeration Even the operating numbers of the FIEs / FAs in China
to state that foreign investment has been viewed as a significantly understate their impact on China’s economy.
necessary evil in China, and if it is not necessary, then it The reason is that the investments and operations of
is simply evil. FIEs / FAs have substantial additional ripple effects
through domestic supply and distribution chains, and
What the Numbers Say through the consumer spending of the employees of the
FIEs / FAs, their domestic suppliers, and their domestic
The numbers that are usually bandied about when distribution channels. Fortunately, when the tools of
it comes to foreign investment in China do not help economic impact analysis, of the sort usually used for
U.S. companies or foreign companies in general make a single investment such as an airport or a conventions
their case in China. China may have received nearly center, are employed with care to remove the potential
US$2 trillion in inward FDI since 1979, but in recent impact of double counting; it is possible to estimate the
years the annual inward FDI flow has accounted for less impact of foreign firms on China’s economy.
than 3% of China’s Gross Capital Formation and FIEs
or FAs have accounted for only around 0.5% of China’s When we apply these tools in China, we estimate
Fixed Asset Investment. The contribution of FIE/FA net that the economic impact of all FIEs / FAs in the country,
exports to China’s GDP has fallen below 2% (Enright, including the ripple effects through supply chains and
Developing China 32-38). For U.S. companies, it is even employee spending, is approximately 33% of GDP and
worse. According to China’s National Statistical Bureau 27% of China’s employment (see Figures 1 and 2), or over
(NBS) and the Ministry of Commerce (MOFCOM), the US$3.5 trillion in GDP and 210 million in employment.
36
Chinese that foreign companies are not necessary U.S. accounted for 1.5% of total inbound FDI into China
for China to prosper in the future. Some of China’s in 2015 (or around 0.045% of total investment in China
major initiatives appear designed to displace rather in 2015) and for 4.5% of the cumulative FDI into China
than to cooperate with foreign companies. As a result, from 1979 to 2015 (the NBS cumulative U.S. FDI and
it is becoming more and more crucial that foreign U.S. Department of Commerce investment position of
companies, governments, chambers of commerce, and U.S. Affiliates in China numbers are similar) (Enright, The
other business groups “make the case” for the value Impact of U.S. 14). Many foreign companies talk about
that foreign investment and foreign companies bring their total investment and their employment in China,
to China. which may be large in corporate terms, but tend to be a
drop in the bucket when compared to China’s economy.
Unfortunately, the approach by foreign companies, Increasingly, “making the case” for the value brought to
governments, and business groups is often framed in China using such numbers is a losing proposition.
legalistic terms like “international norms,” or “international
obligations,” or “reciprocity,” or in general statements However, there are other numbers that are more
about the “good of China.” Unfor tunately, these realistic, and more helpful, in terms of describing the
approaches not only don’t work, they are often met with contribution of U.S. and other foreign companies to
incomprehension on the Chinese side. After all, In China China. After all, it is not the investment flows, but the
“norms” and “obligations” are seen to be a means not an operations of FIEs / FAs on the ground that contribute
end. And the notion that foreigners, particularly those to China’s economy. NBS reports that in recent years all
with a profit motive, should be telling Chinese officials FIEs / FAs in China have accounted for over 20% of sales,
“what is good for China” can be seen as misguided or assets, employment, and value added (GDP contribution)
condescending. in the industrial sector. Since the industrial sector is still
around half of China’s economy, industrial FIEs / FAs
After 20 years of working with major international alone account for around 10% of China’s GDP, which in
companies and foreign governments on their China 2016 would mean on the order of US$1.1 trillion. And
strategies, we know that if foreign companies, while NBS estimate of U.S. FDI inflows in 2014 were
governments, and business groups want better access US$2.4 billion, the Department of Commerce’s estimate
to China, they have to show through specific analysis the of the value added in China (GDP contribution) of just
economic benefits they bring to China. Hard-edged self- Majority-owned U.S. Foreign Affiliates (MOUSFAs) was
interest is that has driven China’s approach to foreign US$66 billion, or 27.5 times the inward investment flow.
investment since the initial opening on 1979, and that is
still very much true today. It is only a slight exaggeration Even the operating numbers of the FIEs / FAs in China
to state that foreign investment has been viewed as a significantly understate their impact on China’s economy.
necessary evil in China, and if it is not necessary, then it The reason is that the investments and operations of
is simply evil. FIEs / FAs have substantial additional ripple effects
through domestic supply and distribution chains, and
What the Numbers Say through the consumer spending of the employees of the
FIEs / FAs, their domestic suppliers, and their domestic
The numbers that are usually bandied about when distribution channels. Fortunately, when the tools of
it comes to foreign investment in China do not help economic impact analysis, of the sort usually used for
U.S. companies or foreign companies in general make a single investment such as an airport or a conventions
their case in China. China may have received nearly center, are employed with care to remove the potential
US$2 trillion in inward FDI since 1979, but in recent impact of double counting; it is possible to estimate the
years the annual inward FDI flow has accounted for less impact of foreign firms on China’s economy.
than 3% of China’s Gross Capital Formation and FIEs
or FAs have accounted for only around 0.5% of China’s When we apply these tools in China, we estimate
Fixed Asset Investment. The contribution of FIE/FA net that the economic impact of all FIEs / FAs in the country,
exports to China’s GDP has fallen below 2% (Enright, including the ripple effects through supply chains and
Developing China 32-38). For U.S. companies, it is even employee spending, is approximately 33% of GDP and
worse. According to China’s National Statistical Bureau 27% of China’s employment (see Figures 1 and 2), or over
(NBS) and the Ministry of Commerce (MOFCOM), the US$3.5 trillion in GDP and 210 million in employment.
36
