Bad-mouthing won't make China less attractive for investors

Note: The following article is taken from the Chinese-language "Commentaries on International Affairs".

This year has been an unusual one for the American clothing retailer Gap. It has closed hundreds of stores in its home country; but it's expanding in China. In last month alone, Gap opened 11 stores on the Chinese mainland. And it plans to open at least 29 more before the end of the year.

A Chinese consumer passing by a GAP store in Shanghai, May 18, 2019. [Photo: IC]

Gap isn't the only foreign company to expand its presence in China this year. By the end of April, foreign capital use reached 305 billion yuan (around 44 billion U.S. dollars), a year-on-year increase of 6.4 percent. Capital inflows from major source countries increased, namely from South Korea (114.1 percent), the United States (24.3 percent), and Germany (101.1 percent). Twenty seven multinational companies have recently opened regional headquarters or research and development centers in Shanghai, and the actual use of foreign capital in the city in the first quarter grew by 20.3 percent year-on-year. And in Hainan Province, home to one of China's special economic zones, the actual use of foreign capital in the first four months of this year shot upwards by nearly 20 fold. Against the backdrop of a sharp slowdown in global cross-border capital flows, it's clear that capital markets are confident of China's development outlook.

This confidence comes from the enormous market China has cultivated. The country has nearly 1.4 billion consumers and the world's largest and fastest-growing middle-income group. In the first quarter of this year, consumption contributed 65.1 percent of the country's growth, and continues to be the main driving force for China's development. China's urbanization rate stands at close to 60 percent and, if it reaches 70 percent, it will mean hundreds of millions of people moving into cities and increasing their consumption.

The confidence of international capital comes from the vitality of China's market. High-tech manufacturing and services have gained a new momentum this year, as seen in the data released by the Commerce Ministry showing that the actual use of foreign capital by China's high-tech manufacturing sector reached 33.4 billion yuan (around 4.8 billion U.S. dollars), up 12.3 percent over the same time last year. The actual use of foreign capital by the high-tech services sector soared 73.4 percent to nearly 52.5 billion yuan (around 7.6 billion U.S. dollars). And the technology commercialization rate jumped 96.3 percent.

China has introduced new laws to ensure national treatment is provided for foreign capital and to strengthen the protection of intellectual property rights. The country is becoming fertile ground for foreign high-tech firms to cultivate their innovations and to develop 5G and artificial intelligence (AI) technologies. Among them are the Dell Group, which has established an AI manufacturing localization alliance with a number of well-known companies in China, and Microsoft, which has set up Microsoft Research Asia and the Microsoft-INESA AI Innovation Center in Shanghai.

Adding to the confidence of international capital is the stability of China's market. Against the backdrop of increasing uncertainties in the global economic outlook, foreign investors are concerned most of all with the predictability of the consumer market. The government is addressing development problems by using the right policy tools and continuing its program of reform. By further opening-up and streamlining its business environment, China has been able to assure foreign investors of the country's growth potential. This potential is evident to the International Monetary Fund (IMF): China was the only major economy that had its growth forecast for this year revised upwards by the IMF. Gita Gopinath, the IMF chief economist, has said the government's decisive actions and comprehensive use of fiscal and monetary policy tools were the main reason for the country's stable economy. And the results of the latest survey released by the American Chamber of Commerce in China reported that nearly 80 percent of the surveyed American companies said the business environment here is improving or remains unchanged, and 62 percent regard China one of the top three destinations for global investment.

President Xi Jinping pledged at the second Belt and Road Forum for International Cooperation that China will further expand market access for foreign investors, strengthen international cooperation on intellectual property protections, increase the imports of goods and services on a larger scale, implement international macroeconomic policy coordination more efficiently, and put more emphasis on the implementation of its opening up policy. This determined effort won't be slowed by unpleasant external noise: no amount of bad-mouthing can kill off the vitality and momentum of China's market.