Laws of economics bring foreign capital closer to China

The combined risks of COVID-19, anti-globalization, trade friction, debt woes, global recession and geopolitics have no doubt amplified the uncertainties of the world.

However, newly released economic figures indicated that the Chinese GDP returned to positive growth in the second quarter, expanding 3.2 percent year-on-year. China also witnessed positive growth in both imports and exports in June and realized a 8.4-percent year-on-year growth in actual use of foreign investment in the second quarter, which signaled foreign investors’ stable and growing expectations of and confidence in the Chinese market.

Foreign investment in China had gathered momentum month by month and seen promising prospects for long-term growth in the first half of this year.

Global foreign direct investment (FDI) would fall below $1 trillion in 2020 for the first time since 2005 as a result of the COVID-19 pandemic, according to the World Investment Report 2020 released by United Nations Conference on Trade and Development (UNCTAD) on June 16.

Meanwhile, in the first half of this year, the actually utilized FDI of China stood at 472.18 billion yuan (about $67.93 billion, excluding foreign investment in banking, negotiable securities, and insurance sectors), dropping by 1.3 percent compared to that of the same period last year.

With COVID-19 being gradually brought under control in China, the actual use of FDI in the country has begun to recover since April, during when the country utilized a total of 70.36 billion yuan of foreign investment, up 11.8 percent from a year ago.

The figure was followed by continuous robust positive growth and a marked upturn in the area.

China is seeing new trends in foreign investment activities, with FDI in China’s high-tech service industry growing rather rapidly.

As China intensifies its efforts on high-quality economic development and the construction of a modern economic system, more than 70 percent of the inward FDI has been used in China’s high-tech service industry, while the proportion used to go into the country’s manufacturing sector.

High-tech service industry had witnessed a 19.2-percent year-on-year increase in actual use of FDI in the first six months of this year. In particular, the FDI in services of information, inspection and detection, and R&D and design, surged by 20.9 percent, 8.7 percent and 35.7 percent, respectively.

China remains one of the most important destinations for global investors. The amounts of actual FDI flowed to China from China’s Hong Kong Special Administrative Region, Singapore, and the U.S. grew by 4.2 percent, 7.8 percent, and 6 percent respectively during the first half of this year, while countries along the routes of the Belt and Road Initiative (BRI) invested 2.9-percent more in China than they did in the same period last year.

As facts have shown, COVID-19 only had a short-term and controllable impact on certain areas of China’s actual use of FDI. With China achieving positive progress in epidemic prevention and control, inward foreign investment in the country has started to pick up.

The actual use of FDI in Chinese provinces including Fujian, Shandong, Jiangsu, Zhejiang, Jiangxi, Heilongjiang, and Hainan maintained positive growth during the January-June period, and that in Jiangsu reached $12.46 billion.

Improving investment and business environment is currently an important task for China.

The foreign investment law, which took effect in China more than half a year ago, has improved the level of foreign investment liberalization and facilitation through detailed provisions on such aspects as market access and transparency of foreign investment policies.

This June, China’s National Development and Reform Commission and the Ministry of Commerce unveiled the 2020 edition of the Special Administrative Measures (Negative List) for Foreign Investment Access and the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2020 Edition), cutting the numbers of sectors in the country that are off-limits for foreign investors from 40 in 2019 to 33 and the prohibited industries in pilot free trade zones from 37 to 30.

China has achieved notable progress in improving investment environment since the release of the first negative list containing 190 items in China (Shanghai) Pilot Free Trade Zone in 2013.

According to the 2020 American Business in China White Paper recently released by American Chamber of Commerce in China (AmCham China), China has made significant progress in perfecting its intellectual property rights (IPR) protection system.

More and more American enterprises in China believe that China’s IPR protection environment is improving, suggested the white paper.

Although the COVID-19 pandemic is still lingering in the country, 96 percent of the respondents predicted that their business in China would return to normal within the next three to six months, said the document.

“In contrast to some global narratives, our China-based data suggests that the majority of our members will not be packing up and leaving China anytime soon,” remarked Alan Beebe, president of AmCham China.

Zhang Yansheng is the chief researcher of China Center for International Economic Exchanges