For China, a "world factory" with massive imports and exports, attracting foreign investment is an important indicator of its market vitality and attractiveness.
According to data released by the Chinese Ministry of Commerce, the actual utilization of foreign investment in China amounted to RMB 574.81 billion, approximately USD 84.35 billion, between January and May 2023. Although this represents a marginal year-on-year growth of 0.1%, it also signifies a decrease of 5.6%. Notably, the manufacturing sector witnessed a 5.9% increase in the actual utilization of foreign investment, reaching RMB 147.08 billion. Furthermore, the high-tech industry experienced a notable growth of 7.5% in foreign investment utilization, with high-tech manufacturing witnessing a remarkable surge of 30.8%, while high-tech services grew by 1.5%.
Regarding the source countries, France, the United Kingdom, Canada, and Japan exhibited substantial increases in their actual investments in China, with growth rates of 429.7%, 179.2%, 170.1%, and 63.3% respectively, including investments through free trade zones.
The data above indicate that foreign investment inflow into China, denominated in the Chinese yuan or renminbi, has sustained positive growth. However, this year's performance in the first five months appears to be average, mainly due to the low base set in 2022. Importantly, the provided foreign investment data represents only incremental figures and does not encompass the existing foreign investment scenario. Moreover, in the current intricate international situation as well as China's domestic environment, the challenges and real issues encountered by foreign investment extend beyond what the data alone can capture.
The ANBOUND research team, guided by the "Big Fieldwork" approach, attaches significant importance to establishing strong communication channels with government entities, private enterprises, and foreign companies. When it comes to evaluating the status of foreign-invested enterprises in China and gaining a deeper understanding of foreign investors' perspectives on the Chinese market, ANBOUND researchers are committed to delivering accurate observations and comprehensive insights.
We have observed that the perspectives of foreign enterprises in China can be broadly categorized into several closely interconnected yet distinct outlooks.
Firstly, there is a contradictory attitude. This mindset is commonly observed in foreign enterprises that have made significant investments and have been operating in the Chinese market for many years. Due to their substantial commercial interests in China, they still value the Chinese market and have a certain level of confidence in its market potential. However, they also fear the uncertainties regarding the future development environment in the country, considering factors such as the worsening geopolitical pressures and potential changes in openness policies. These foreign investors have conflicting sentiments about whether to increase their investments in the Chinese market. Such a contradictory attitude can influence their strategic decision-making concerning the Chinese market.
Secondly, there is a prevailing sense of doubt and concern among foreign enterprises of all sizes. Their skepticism and worries encompass various aspects. For instance, they question the stability and consistency of China's foreign investment policy. They also wonder if policies promoting indigenous innovation, domestic substitution, and state-led development might exclude foreign enterprises. The disparity between the policies highlighted by Chinese leaders and official documents, and the actual experiences and perceptions of these enterprises in their operations, raises questions. The emphasis on China's "domestic circulation" prompts concerns about the eventual closure of doors to foreign investment. Foreign investors also wonder if different standards will be applied to them in Chinese government procurement for goods and services. These diverse concerns highlight the need for foreign enterprises to receive clear and concise policy information in the relevant fields.
Thirdly, there is an inclination toward risk aversion. As China's international geopolitical environment deteriorates and the country implements countermeasures against U.S. sanctions, foreign investors have grown increasingly concerned about the risks associated with the Chinese market. In response to these risk considerations, a number of these investors have taken proactive measures to mitigate risks. They have adopted a "China + 1" strategy, diversifying their investment portfolios to include other countries and regions outside of China, thus establishing new global supply chains. Some of them explicitly state their intention to make separate investment arrangements specifically for the Chinese market, distinct from their investments in other markets, acknowledging that this approach is motivated by risk aversion. Additionally, the gradual escalation of China's counter-sanction measures and the emphasis on digital security and national security have further amplified risk-averse sentiments among certain foreign investors.
Fourthly, there is a complacent mentality. It is important to note that there is a growing trend among foreign investors in China who adopt this mindset, and this situation deserves high attention from Chinese policy departments. In the past, foreign investors were active participants in the Chinese market, actively seeking to understand investment policies and market access, and striving to secure larger orders and higher market shares. However, in recent years, there has been a significant shift in the attitude of foreign investors towards the Chinese market. Many foreign-invested enterprises are no longer pursuing market expansion or seeking to improve the investment environment. Instead, they have embraced a passive outlook. What is more concerning is that some foreign investors are no longer concerned about the performance of the Chinese market and have chosen to adopt a less proactive approach. They simply comply with policy requirements and refrain from engaging in activities that pose difficulties.
The diverse attitudes of foreign investors in China currently lean predominantly negative. Particularly noteworthy is the emergence of a passive and detached mindset, which raises concerns about the diminishing interest and significance placed on the Chinese market by these investors. Should this trend persist, it is likely that they will withdraw or grow disillusioned with the Chinese market.
In response to the changing attitudes of foreign investors in this complex landscape, it is important for governments at all levels in China to implement effective strategies that instill confidence and provide reassurance. We suggest considering essential adjustments in policies and practices in the following areas:
Firstly, at the top-level design, it is crucial to reaffirm China's commitment to reform and opening up. Emphasizing continuous support and encouragement for both domestic enterprises and foreign investment is essential. Foreign investors have noted that, in essence, the government's attitude toward domestic enterprises may reflect its treatment of foreign investment.
Secondly, China should maintain a stable and consistent policy environment, demonstrating its support and encouragement for foreign companies. This stability is a fundamental element of a conducive business environment.
Thirdly, relevant government departments need to proactively engage in communication with foreign investors. Some Japanese companies operating in China have suggested that when high-ranking Chinese officials visit Japan and engage with Japanese headquarters, the impact is more significant than the lobbying and reporting efforts of foreign companies in China.
Lastly, it is crucial to embrace globalization and adopt a forward-looking approach in policy formulation, emphasizing the long-term development of both China and its neighboring countries.
Final analysis conclusion:
Overall, the mindset of foreign investors in China is heavily influenced by the international situation, resulting in growing concerns and doubts. It is crucial for governments and policy departments at all levels in China to closely monitor the shifting mindset, development outlook, and strategic adjustments of foreign investors. In response to the global trend of "decoupling" and risk mitigation from China, it is vital for the country to maintain its commitment to openness, so as to attract and retain foreign investment in the Chinese market.
