Source: CD    Published: 2022-10-15

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Greater development dividends anticipated as country continues to advance reform and opening-up

Halma plc, a global life-saving technology company headquartered in the United Kingdom, announced in September that it is investing in an integrated production, research and development base in Shanghai.

Upon completion, the base will be Halma's largest single integrated site and a critical part of the FTSE 100 group's global supply chain, which currently includes more than 30 companies operating business in China.

That is just one of the most recent examples of the bright foreign direct investment outlook for China, especially in the high-tech and services sectors.

"China will continue to remain a long-term growth driver for Halma in the next 10 to 15 years," said Aldous Wong, executive board member of Halma and president of Halma Asia-Pacific.

"We see China not only as a market, but also a source of innovation. The integrated site will be a valuable step for enhancing our R&D capability and ensuring agile supply chain for products that best serve the China and Asia-Pacific markets," he said.

Against the background of rising protectionism in the world, FDI in China has continued to set new records in recent years, making the nation the world's second-largest FDI receiver for four successive years since 2017.

Despite the multiple external and internal headwinds such as geopolitical tensions, the pandemic, and the pressure from some US politicians to decouple from China, experts and business leaders expect China to continue to attract foreign investment in the future, as its supersized domestic market continues to expand while its importance in the global industry and supply chains keeps increasing amid its steady economic upgrading and high-level opening-up.

That means more of China's development dividends will be shared with foreign companies, which in turn will facilitate cross-border business interaction and China's economic growth.

The inbound foreign direct investment into China exceeded 1.1 trillion yuan ($150 billion) in 2021, up nearly 15 percent year-on-year, according to the Ministry of Commerce.

The number of newly established foreign-funded enterprises in China rose to 48,000 in 2021, up 23.5 percent from a year ago.

And despite the strict prevention and control measures adopted in key economic hubs such as Shanghai during the first half of this year, the latest data from the ministry show the actual use of foreign capital in China reached 892.74 billion yuan in the first eight months of the year, soaring 16.4 percent from a year ago.

Moreover, the inbound investments utilized by the service sector rose 8.7 percent year-on-year to 662.13 billion yuan during the period. The growth rate in the high-tech sector was 33.6 percent, including 43.1 percent and 31 percent for high-tech manufacturing and high-tech services, respectively.

"Apart from its huge domestic market, China also has a systemic advantage in its industry and supply chains that is attractive to foreign investment, thanks to its stable and comprehensive capabilities in various aspects such as manufacturing, logistics and talent," said Liu Ying, a researcher at the Chongyang Institute for Financial Studies at Renmin University of China.

"Despite the pressure from the rising anti-globalization sentiment in some quarters and political considerations, most foreign investors remain committed to the China market because they are aware that China will continue to outperform others in providing business opportunities and development dividends," she said.

Zhang Jianping, head of the center for regional economic cooperation at the Chinese Academy of International Trade and Economic Cooperation, said that while many foreign companies are increasing investment in China to tap the market potential, a rapidly growing number of foreign companies are investing more in the country because they are confident of the country's rising position in the global supply and industrial chains.

Ingredion Incorporated, a US-based global ingredient solutions provider, for instance, is one of the multinational companies attaching increased importance to the supply chain in China.

The company recently opened a new production facility called Shandong South, in Dezhou, Shandong province, to double its starch production capacity in China. It now has three manufacturing plants in China.

Jacques Guglielmi, vice-president and general manager of North Asia, and Asia-Pacific Commercial at Ingredion, said: "With this investment, we are positioned for customer success in a world where supply chain resilience and sustainability are more crucial than ever."

He said the company has witnessed a lot of innovations in China and anticipates strong growth in China over the next five years.

The new factory features advanced digital technologies and automation and is designed to export products worldwide. It will increase Ingredion's capability to deliver consistent products and ensure the stability of its supply in the region, he said.

A global industrial and supply chain stabilizer and economic powerhouse during the pandemic, China's gross domestic product hit 114 trillion yuan in 2021, lifting its share of the global economy to more than 18 percent, which was more than 6.6 percentage points higher than it was in 2012.

China has been continually deepening reform and expanding opening-up to broaden market access for foreign investors, improve its business climate and promote implementation of major foreign investment projects through concrete actions, while transitioning the economy toward the higher value-added end to ensure stable economic upgrading and growth.

Although labor costs are relatively cheaper in Southeast Asian economies, China's strong economic resilience, including the stability, openness and the high efficiency of its manufacturing and industrial sector, makes China a more practical choice for multinational companies to locate hub factories and expand business operations, according to Liu, the researcher with the Chongyang Institute for Financial Studies.

Zhang Jianping, with CAITEC, also said China has an unparalleled investment environment for foreign investors, thanks to its complete industry and supply chains, ever-improving business climate, and stable and bright economic fundamentals.

He said more foreign companies are investing in sectors such as high-end manufacturing, high technology and energy conservation and environmental protection in China, which will help accelerate and enhance the utilization of talent, capital, technology and other production factors in those sectors, to promote national economic upgrading and growth, and add to China's appeal for foreign direct investment.

Vivian Zhang, general manager of Merck China Healthcare, said China has a key position in Merck's global network where the German company has forged strong strategic partnerships with local pharmaceutical companies to develop innovative drugs and provide innovative healthcare solutions to more patients.

"Our continuous investment (in China) means we are highly merged with China's local supply chain and its industrial value chain," she said.

The experts also said that China is expected to make further efforts to propel high-quality development and expand high-level opening-up to create more business opportunities for foreign investors and thereby boost FDI to reinforce the virtuous circle.

Liu, with the Chongyang Institute for Financial Studies, said China is pursuing institutional innovations to expand high-level opening-up and attract more FDI, such as deepening reforms in the pilot free trade zones, improving government services, and enhancing the foreign investment regulations based on the negative lists.

To boost FDI, the nation is also expected to bolster infrastructure construction, improve the design process for government policy to better meet the needs of enterprises, and nurture new drivers for economic upgrading and high-quality development, she said.