China retains its appeal for foreign firms

China’s wide appeal for multinational corporations will continue due to its robust domestic market and its unwavering dedication to opening up its economy, despite a globally subdued investment sentiment, say analysts and heads of foreign chambers of commerce in China.

Participating in various events during the 2023 China International Fair for Trade in Services, which concluded on 6 September in Beijing, they noted that there has been a quantity-to-quality shift in the inflow of foreign investment into the country. This transformation, they said, is aligned with China’s pursuit of high-quality development that aims to generate more growth opportunities in sectors such as trade in services and high-end manufacturing.

Jens Hildebrandt, executive director of the German Chamber of Commerce in China (North China), said that despite the impact of geopolitical tensions on global business confidence, foreign investors will continue to have confidence in China’s economic growth in the long run.

The previous cooperation model is changing, he said, referring to the fact that German companies provided technology to China in the past and tremendously benefited from the Chinese market. But now, China has strong brands and high-end technologies, which are successfully penetrating both the German and European markets, especially in the decarbonisation and healthcare sectors.

Highlighting that German investment in China is currently concentrated in the industrial sector, Hildebrandt said that with China gradually opening up its services industry, German companies will have more access to the Chinese market in the coming years.

As the global economy is dealing with a sluggish recovery and cross-border investment remains lacklustre, China has intensified efforts to boost its foreign investment inflow, unveiling 24 targeted policy measures in mid-August.

The authorities pledged to ensure that foreign businesses receive the same treatment as their Chinese counterparts and enjoy the nation’s stronger fiscal support and tax incentives.

The policy rollout will boost the confidence of multinational corporations in conducting long-term operations in China and, therefore, play a pivotal role in revitalising global cross-border investment, said Loh Wee Keng, chairman of the Malaysian Chamber of Commerce and Industry in China.

Even though foreign direct investment (FDI) in the Chinese mainland in terms of actual use dropped 4 per cent year-on-year to 766.71 billion yuan (£84.2 billion) in the first seven months of this year, China saw the number of newly established foreign-invested enterprises in its market reach 28,406 during the period, up 34 per cent year-on-year, data from the Ministry of Commerce showed.

FDI in the high-tech industry grew 3.8 per cent year-on-year, while in high-end manufacturing, it soared 25.3 per cent.

Roberta Lipson, vice-chair of the American Chamber of Commerce in China, said she believes the recent high-level interactions between senior government officials from China and the United States will instil greater confidence among US companies in China.

For a majority of AmCham China members, China remains the most critical investment destination, and they will continue conducting business here, as they are enthusiastic about China’s growth, Lipson said.

She added that China’s recent 24-point policy to support the growth of foreign companies, the reforms in its pilot free-trade zones and other opening-up measures are practical moves to shore up the nation’s economy.

Geraldine McCafferty, deputy head of mission at the British embassy in Beijing, said the United Kingdom does not believe in the “decoupling” narrative. “We think that international trade is a good thing. The more we reform and open up our economies, the better it is for global prosperity.”

McCafferty said that with closer business ties, the Chinese and British economies will further benefit from the services sector.