China remains attractive to foreign investors. According to the latest data from the Ministry of Commerce (MOFCOM), the foreign direct investment (FDI) in China exceeded 1 trillion yuan ($157.20 billion) for the first time in 2021 to reach about 1.15 trillion yuan, up 14.9% year-on-year. In the same year, China registered 48,000 new foreign-invested enterprises, up 23.5%. Despite the twin factors of downward pressure on the domestic economy and an uncertain outlook for the global economy amid the pandemic, China has witnessed robust growth in foreign investment. However, arduous efforts must be made to stabilize foreign investment.
China has been the most attractive developing country to foreign investors for many consecutive years, ranking second after the U.S. Foreign investment is a critical part of China’s economy. When it had just opened its doors to the outside world, China was eager for foreign investment due to a capital scarcity. However, as the country’s economy grew rapidly and Chinese enterprises became more competitive, a number of people and even some high-level officials became so complacent that they thought, “we’re rich,” resulting in less importance given to foreign investment, and even discrimination against foreign investors, which was unwise. Facing the rise of unilateralism and populism around the world, China should pay more attention to the unique and important role of foreign investment.
Foreign investment plays different roles at different development stages. For example, the manufacturing industry that dominated the early stages has now been replaced by the service industry. In addition, China addressed its capital shortage to improve employment and income in the early stages, but it now attaches greater importance to introducing high technology. However, foreign investment remains as important as it ever was. Foreign investment bridges the domestic and international markets, and fuels domestic and international circulation; foreign investors are indispensable contributors to China’s building of a positive international image. More importantly, foreign investment is a vital element for China to advance its high-quality development and build an innovative country. At present, there are still significant spillovers of technology, management and ideas from foreign-invested enterprises. It is definitely the correct decision for the Chinese government to include foreign investment among measures for stabilizing employment, finance, foreign trade, domestic investment and market expectations. In this context, MOFCOM’s announcement that China will open its doors wider to the world and improve its supporting policies should be applauded.
China’s economic growth offers rare opportunities for foreign investors. China provides a favorable business environment with its huge market, well-established infrastructure and abundant human resources. Over the years, multiple factors such as the low labor costs, adequate land supply, greater tolerance to environmental pollution and favorable policies have facilitated the significant growth of foreign investment in China. However, these factors are changing. “Super-national treatment” is a thing of past. China was on pins and needles at one point with the retreat of foreign investors due to increased labor costs. The provision of national treatment for foreign investors is a prerequisite for fair competition among all enterprises. Industrial transfer is consistent with the internal logic of transnational investment, but the key lies in whether China can truly “empty the cage and let the right birds in” by practically guiding foreign investment to desired areas such as advanced manufacturing, modern services, high technology and green and low-carbon development.
It is a great challenge to align foreign investment with the new changes and requirements of China’s economy, and create a harmonious coexistence with China’s development. This challenge is not only associated with the external environment, but also with China’s opening-up and improved business environment. The attractiveness of a country’s economy to foreign investors is increasingly reflected in its favorable policies and systems, and not merely in opportunities for profit. In recent years, the central government has introduced institutional opening-up as the core of its high-level opening-up strategy. Continuously deepening institutional opening-up is the only way to reassure foreign investors.
China has proposed stricter requirements and higher standards for relevant reforms in light of changes in foreign investment. Since the services sector outperformed the manufacturing industry in its share of paid-in foreign investment in 2010, China has given greater attention to related reforms by further easing market access for foreign investment in the service sector. It should be noted that there is a huge space for growth in this regard. One serious concern is whether tangible results can be achieved from the development of national demonstration zones for the innovative development of trade in services and implementing a negative list for cross-border trade in services across the country in 2022. Innovation in supervision actually means reforming mechanisms that are incompatible with the liberalization, and facilitation of trade and investment. Structural changes aimed at attracting investment into high-tech industries, whether high-tech manufacturing or high-tech services, definitely involve higher requirements in terms of protection of intellectual property, free flow of human resources and so on. The fundamental logic of reform and opening up, that is, pushing reform through opening up, remains valid.
Improvements to the business environment are key to stabilizing foreign investment. To continuously deepen reform in streamlining administration, improving regulation and upgrading services, creating an open, fair and predictable environment for foreign investment, and enhancing foreign investors’ confidence, the most important approach is to implement the Foreign Investment Law and its implementation rules, and improve the supporting measures. Rules and regulations mirroring China’s resolve to open up must be implemented. For example, the government should ensure that foreign-invested enterprises have equal access to government procurement through fair competition in accordance with the law; the management of foreign investment in areas beyond the negative list should follow the principle of equality between domestic and foreign investors; and administrative agencies and their staff should be prohibited from using administrative means to force any technology transfer. In addition, acts that violate fair competition should be rectified in time. Facilitation measures, including improving the complaint and settlement mechanism for foreign-invested enterprises, and smoothing the communication channels between the government and foreign investors, will be recognized and appreciated by foreign investors.
To value and utilize foreign investment, China should accelerate the development of opening-up pioneers. On the one hand, China is actively exploring domestic opening-up. Pilot free trade zones and the Hainan Free Trade Port that serve as the new frontiers of China’s opening-up are focused on trade and investment liberalization and facilitation, and implementation of a simplified investment approval system. On the other hand, China is playing an active role in multilateral cooperation mechanisms with higher-level opening-up. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that China wants to join is the strictest and most complete multilateral free-trade agreement, involving many fields such as tariff barriers, fair competition, intellectual property and government procurement. Alignment with high-level international trade and investment rules provides a package of solutions for stabilizing foreign investment.
The development of foreign investment in China is closely connected with the country’s reform and opening up process and ideological liberation. It is difficult for people today to comprehend how doubtful Chinese people were about foreign investment before the beginning of reform and opening-up, and how difficult it has been for China to realize its current achievements in attracting investment. As an old Chinese saying goes, if the nest is built, the phoenix will be attracted; when the flowers bloom, butterflies will come. To align itself with the highest-level standards of the global economy and trade in the 21st century and find a better position in the global industry chain, China must open its doors ever wider to foreign investors.
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