China still attracts FDI, up 4.1% in July
August 20, 2019 Category China News Round-up, Weekly
Foreign investment in China (FDI) accelerated in July despite trade tensions with the United States, contradicting claims from U.S. President Donald Trump of an exodus of investors. In July, FDI into China rose 4.1% from a year ago to USD8.07 billion, a higher rate from the 3% rise in June, according to China’s Ministry of Commerce (MOFCOM). In yuan terms, FDI increased to CNY54.82 billion in July, 8.7% higher compared to a year earlier, also picking up slightly from an 8.5% rise in June. As many as 3,919 new foreign-invested enterprises were incorporated last month.
As foreign investment in China is still rising, U.S. President Trump claimed that “thousands” of companies were fleeing China because of U.S. tariffs imposed by his administration over the last 13 months of the trade war. “They must stem the flow,” the U.S. President tweeted, insisting that Beijing “badly” wanted a trade deal after the latest round of talks in Shanghai in July failed to yield any significant progress and after Trump’s threat to impose 10% levies on USD300 billion of Chinese goods from September. Meanwhile, Trump postponed imposition of some tariffs to December 15.
However, in the first seven months of the year, the aggregated FDI into China rose 7.3% to CNY533.14 billion, or 3.6% to USD78.8 billion, accelerating from 7.2% and 3.5% in the first six months of the year. MOFCOM did not disclose the growth rate of direct investment from the U.S., a figure that has been missing from the data for the last two months. Investment from Germany and South Korea increased by 72.4% and 69.7% respectively between January and July. Pan Gongsheng, Vice Governor of the People’s Bank of China (PBOC), wrote that FDI into China still had great potential for development, as the business environment in the country had further improved. “The liberalization and facilitation of cross-border trade and investment will have a greater improvement,” he said. Xin Guobin, Vice Minister of Industry and Information Technology, said in July that Beijing was not surprised some foreign manufacturing companies had opted to relocate from China, but that there was only a limited number of firms who had left, the South China Morning Post reports.
Meanwhile, the quality of the FDI inflow has optimized with more capital flowing into the high-tech sector. Investment in high-tech industries climbed 43.1% year-on-year to account for 29.3% of total FDI. FDI in the high-tech service sector surged 63.2% year-on-year between January and July, while that in the high-tech manufacturing sector rose by 19% year-on-year. According to a survey by the American Chamber of Commerce in Shanghai, 80% of U.S.-funded enterprises are optimistic about their development prospects in China over the next five years. Shanghai attracted total contractual foreign investment worth USD22.9 billion during the first half of 2019, up 6.3% from a year earlier. The actual use of foreign investment reached USD11.45 billion in the January-July period, up 13.8% year-on-year. During the period, 4,105 new foreign-funded enterprises were established, up 58.3% over the same period in 2018. The high-tech service industry reported an actual use of foreign investment of USD1.7 billion, an annual growth of 29.6%.
New growth momentum has been created by plans to establish six new pilot free trade zones (FTZs) and releasing two shortened negative lists for foreign investment to allow access to more industrial sectors, said Lu Ming, Vice Dean at the Academy of the China Council for the Promotion of International Trade (CCPIT).
But some foreign companies are indeed planning to leave China. South Korea’s Samsung and Japan’s Olympus and Epson have already closed factories in China, and are believed to be considering withdrawing completely from the Chinese market. Retailer Carrefour, along with Tesco and Wal-Mart, are also in the process of selling significant stakes in their Chinese operations.
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