In response to online speculation that "foreign capital is withdrawing from China on a large scale," recent data and corporate activities suggest a more nuanced reality.
Contrasting Data: Decline in Investment but a Rise in New Foreign Enterprises
According to official statistics, in 2024, China's use of foreign investment declined by 27.1% year-on-year, while newly established foreign enterprises increased by 9.9%. At first glance, this may seem contradictory, but it reflects shifting investment patterns and market dynamics.
A prime example is Walmart, which has been frequently rumored to be "leaving China" due to store closures. However, in December 2024, Walmart opened its 52nd Sam's Club store in Wenzhou, and its Q3 net sales in China grew by 17% year-on-year. This demonstrates that foreign businesses adapt to a changing Chinese market rather than exiting it entirely.
There is one thing we need to figure it out, does China still need foreign investment?
As China transitions into a high-quality development phase, its economic strategy has shifted from capital scarcity to capital abundance, balancing both 'Chinese business go global' and 'attract foreign investment'. Some speculate that China no longer needs foreign investment, while Western media claim China is closing its doors to foreign businesses.
However, China's commitment to economic openness remains strong. The country has implemented major reforms to attract foreign investment, including:
- Expanding international trade events like the China International Import Expo (CIIE) and Global Supply Chain Expo
- Reducing the negative list for foreign investment
- Granting foreign businesses equal treatment in the domestic market
These policies have lowered entry barriers, increasing small and medium-sized foreign enterprises entering China.
Why Has Foreign Investment Declined?
Foreign direct investment (FDI) is a long-term, strategic decision influenced by global economic trends. The fluctuation in China's FDI inflows is within normal economic cycles:
- Short-term factors: From 2021 to 2023, China's annual foreign investment inflows exceeded 1 trillion yuan, meaning the 2024 decline represents a market adjustment rather than a crisis.
- Long-term shifts: Global investment is moving towards service-oriented and asset-light industries, causing temporary disparities between investment scale and new business registrations.
Sectoral trends: Over 70% of China's foreign investment now flows into the service sector, which has lower capital intensity than manufacturing, naturally affecting overall FDI figures.
Foreign Businesses Still See China as a Key Market
Despite external challenges, foreign businesses continue to view China as a prime investment destination. China's advantages remain compelling:
- Technological advancements and skilled labor enhance its global competitiveness.
- A massive consumer market offers unparalleled business opportunities.
- A pro-business environment ensures long-term stability for investors.
While some foreign companies have exited due to market shifts, many high-tech and innovation-driven enterprises are entering China.
China remains steadfast in its commitment to openness and mutual benefit. As the report concludes: "Investing in China is investing in our future."
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