Why China remains a magnet for foreign investment

Note: The following is an edited translation of a commentary from the Chinese-language "Commentaries on International Affairs."

China was something of a shining light in what was a fairly dark year for the world's economic performance. Against the backdrop of a nearly 20 percent slump in global cross-border investment, new data from China's Commerce Ministry shows that more than 60,000 foreign-funded enterprises were established in the country last year, an annual increase of nearly 70 percent. The actual use of foreign capital was up 3 percent to hit a new high of 135 billion U.S. dollars. And the proportion of foreign investment in China's manufacturing sector increased to nearly one-third, while capital utilized by the high-tech manufacturing sector surged by 35 percent.

China's actual use of foreign capital hit a new high of 135 billion U.S. dollars in 2018 despite a nearly 20 percent slump in global cross-border investment. [Photo: VCG]

During the year, Tesla broke ground in Shanghai for its first Gigafactory outside the United States. BMW announced new investment of more than three billion euros to expand its production capacity on the Chinese mainland. And BP outlined its plan to open 1,000 more gas stations in China – double its existing number.

The confidence of global multinationals in China's market was given a substantial boost after the government announced a range of measures to make the country a more attractive target for investment. These measures included removing foreign-ownership limits for industries including ship and aircraft manufacturing, laying out a timetable for the opening of the domestic auto industry, and fully opening up its general manufacturing sector to foreign investors.

In the meantime, the government has been introducing policies that favor investment in central, western, and northeastern China, which are relatively under-developed compared with the country's eastern seaboard. It is also facilitating transfers of industrial capacity from eastern China into those areas. The result of these efforts has been a more than 15 percent increase in the actual use of foreign capital in central and western China.

Investment into China from developed countries has grown fast, with Britain leading the way. And despite the rising trade frictions, investment from the United States increased by nearly 8 percent. Investors have benefited from China fulfilling its commitment to significantly broaden market access, create a more attractive investment environment, strengthen the protection of intellectual property rights, and take the initiative to expand imports.

Looking around the world, it's hard to find another market quite like China's. Its consumer market has huge potential for growth, and as a supplier it can furnish incoming investors with all of the hardware and software technology they need. But despite last year's successes, there is more to be done. The government plans to introduce new measures to make government procurement more competitive, and it will continue to set industry standards and streamline company registrations and public listings. With all of these new initiatives in the works, it's fair to say that China will continue to be a magnet for foreign capital inflow in the year ahead.