Foreign investment in China reaches 94% of 2019 levels

The investment boom comes despite continued political uncertainty for foreign firms.

For all the talk of an economic decoupling between China and the US and its allies, foreign companies continue to pour money into the Asian nation.

The coronavirus pandemic and trade tensions have highlighted the risks of over-reliance on China, prompting several countries to consider diversifying supply chains, with a potential knock-on effect on investment.

Yet the latest official data from China shows that hasn’t happened. New foreign investment is on track to set another record in 2020, hitting 94 per cent of last year’s total by the end of November, according to Commerce Ministry data released this week.​

Not only is that helping to drive the economic rebound, but with China reducing barriers to investment and the economy the only major one likely to grow this year, investment is set to continue flowing into the country.

“US and other foreign firms will continue to invest in China as it remains one of the most resilient economies during the global pandemic and as future growth potential there remains stronger than most other major economies,” said Adam Lysenko, an analyst at Rhodium Group who researches Chinese investment.

The investment boom comes despite continued political uncertainty for foreign firms. The Trump administration has ratcheted up tensions in recent months, placing restrictions on Chinese businesses, especially in the technology sector. China’s policy toward the incoming Joe Biden administration is still unclear. And an investment treaty between the European Union and China hasn’t yet been signed, although it’s getting close.

New Business 

China is making a bigger effort to boost foreign investment. The government this week published a shortened list of sectors in which market access is restricted, and also said some international businesses would be able to tap financial support.

Despite the outbreak of the pandemic and the unprecedented economic contraction in the first quarter, almost 19,000 new foreign firms were set up in the first seven months of the year, officials said in August.

The automobile industry is one that’s seen increased activity. China was already the world’s biggest car market before the coronavirus, and although sales are expected to fall for a third year this year, global companies are looking to Chinese demand to boost their fortunes.

In the financial sector, companies such as UBS AG, Daiwa Securities Group and Goldman Sachs Group have either taken control of their joint ventures in China, or are looking to do so as the industry is further opened up.

At the same time, a record $214 billion in foreign funds have poured into higher-yielding Chinese bonds and stocks this year. The currency is likely to continue to appreciate next year on those flows, even as the US sanctions Chinese firms, works to stop pension funds investing in Chinese companies, and passes legislation that could stop them listing on US stock exchanges.

Staying Put

Recent business surveys show many European and American companies are staying put in China, despite increasing calls from various politicians to diversify their operations or return home. More than three quarters of the 200-plus US manufacturers in and around Shanghai said they didn’t intend to move production out of China, according to a September survey.

The governments of Japan, South Korea and Taiwan have implemented policies to help reduce their economies’ reliance on Chinese supply chains and production, but with mixed results so far.

Taiwan has a long-term plan to attract capital back home from China, though companies continue to boost their investment into the mainland as well.

In Japan, the government began paying companies this year to invest at home or in Southeast Asia, though there’s little sign that the subsidies have caused any firms to pull out of China so far.

“China doesn’t have to be worried or dissatisfied,” Japan’s new ambassador in Beijing, Hideo Tarumi, told Phoenix TV last month. “We’re not asking Japanese companies to withdraw from China, but to diversify risks.”