Many people have not noticed that in the recently concluded Third Plenary Session of the 20th Central Committee, a long-lost term appeared in the communiqué: foreign capital.
The communiqué states:
It is necessary to steadily expand institutional openness, deepen the reform of foreign trade system, deepen the reform of foreign investment and foreign investment management system, optimize the regional opening layout, and improve the mechanism for promoting high-quality joint construction of the "Belt and Road" initiative.
This is an extremely unusual signal.
The reform of the foreign investment management system, as an important part of China's steady expansion of institutional openness, has been so distinctly proposed at a significant meeting for comprehensive deepening reform.
For comparison, in the communiqués of the Third Plenary Sessions of the 18th and 19th Central Committees, the term "foreign capital" did not occupy a place.
Why is it necessary to re-mention foreign capital at the Third Plenary Session with a strong reform significance?
Under the pressure of the anti-globalization wave and decoupling and breaking the chain, what changes are happening to foreign capital?
As our door to openness becomes wider and wider, will foreign capital continue to vote with its feet and place a greater development stake in the Eastern power?
These questions are extremely important.A more explicit point is:
At this moment, we need foreign capital more than ever before.
The door to foreign investment in China is opening wider and wider.
The most symbolic is Tesla. In the past, it couldn't even enter the parking lots of state-owned hotels and restaurants, let alone government buildings.
But now, not only can it enter, but it has also been included in the procurement catalog of governments and state-owned enterprises in Jiangsu and Shanghai. In the future, government leaders and executives of state-owned enterprises are expected to "ride" Tesla to work.
In fact, China's emphasis on foreign investment is reaching an unprecedented level.
In April last year, the Central Political Bureau meeting still stated that attracting foreign investment should be placed in a "more important position". By August, it had reached the height of "raising political stance".
That is to say, whether to attract and stabilize foreign capital is no longer just an economic issue, but has reached the political height that concerns the fundamental interests of the country and the people.At the end of last year, during the highest-level economic work conference held annually—the Central Economic Work Conference—the phrases "expanding high-level opening up to the outside world," "consolidating the foundation of foreign trade and foreign investment," and creating the "Invest in China" brand were deployed as key tasks for this year.
From the end of last year to the present, over the course of more than half a year, there have been at least eight high-profile discussions and research meetings on foreign investment, which is quite rare.
—On February 23, the State Council's executive meeting pointed out that stabilizing foreign investment should be an important focus for this year's economic work, and it is necessary to consolidate the confidence of foreign investment in China's development.
—Eleven days later, the "Two Sessions" released the "Government Work Report," which mentioned consolidating the foundation of foreign trade and foreign investment, and cultivating new advantages in international economic cooperation and competition.
—Immediately following, on March 19, the General Office of the State Council issued the "Action Plan for Solidly Promoting High-Level Opening Up and Attracting and Utilizing Foreign Investment with Greater Efforts," proposing 24 specific measures.
—Most recently, on June 26, the State Council's executive meeting once again proposed that "efforts should be increased to attract and utilize foreign investment, and multiple measures should be taken to stabilize foreign investment."
—Just four days later, He Lifeng, a member of the Political Bureau of the CPC Central Committee and Vice Premier of the State Council, presided over a symposium on foreign investment work, emphasizing the need to "accurately grasp the new situation faced by current investment attraction work, further enhance confidence and determination, and further improve the work of attracting and utilizing foreign investment."
—Then, at the just-concluded Third Plenary Session of the 20th Central Committee, it was extremely rare to mention the need to "deepen the reform of the management system of foreign investment..."
The high level and high density of discussions on stabilizing and attracting foreign investment imply something significant and thought-provoking.Take a look at the big provinces with foreign investment, which are also very active:
In Guangdong, Governor Wang Weihong led the delegation himself, and the Guangdong delegation visited France, Cuba, the United States, and other countries to discuss cooperation.
In Jiangsu, the Samsung Semiconductor Global Distribution Center moved to Suzhou Industrial Park and opened. It took only 4 days from signing the land contract to obtaining the construction permit, and it took only more than 400 days from the start of construction to the completion of the project.
In Zhejiang, the investment cooperation signing ceremony for the Yokohama Rubber Qiantang project was held in Hangzhou recently. The project plans to invest about 500 million US dollars, which is the largest single foreign-funded manufacturing project introduced by Hangzhou in recent years.
This hot scene is almost comparable to the period when China just joined the WTO at the turn of the century.
Although expanding openness is China's strategy, why is the wind blowing towards foreign investment getting stronger and stronger?
Obviously, some real situations have changed.
In the past, based on a good business environment and the largest market in the world, China's foreign investment inflow has always been positive. Even after the Sino-US trade war started, and during the years of the epidemic, it continued to rise.
However, in 2023, foreign investment decreased, with a drop of about 8%.An investment amount of 1.13 trillion has roughly returned to the level of 2021. Although there is still an increase of about 20% compared to before the pandemic, according to the statistical data released by the Ministry of Commerce, this year's situation still does not allow us to be overly optimistic:
In January of this year, the actual use of foreign capital decreased by 11.7% year-on-year,
From January to February, it decreased by 19.9% year-on-year,
From January to March, it decreased by 26.1% year-on-year,
From January to April, it decreased by 27.9% year-on-year,
From January to May, it decreased by 28.2% year-on-year,
From January to June, it decreased by 29.1% year-on-year.
This is also the first time in recent years that the actual use of foreign capital has decreased year-on-year by 2.7% from January to June last year, followed by a continuous decline for 13 months.
Why is this the case?
Is it really like some media hype suggests, that there is a "mass withdrawal of foreign capital"?The answer is not that simple.
In fact, the new challenges we are facing today are absolutely unprecedented.
Let's start with a big picture: in 2023, apart from a few European "conduit economies" that saw significant growth, foreign investment worldwide was severely impacted. Looking at the global scale:
Foreign Direct Investment (FDI) actually decreased by 18%!
In comparison, China's decline in foreign investment (-8%) is considered to have been less affected.
Behind this fluctuation in foreign investment, there are actually two "once-in-a-generation" factors at play. Guan Tao, the Global Chief Economist at BOC Securities, stated that it was precisely because both major items experienced significant changes that occurred once every two to three decades that led to the direct investment inflow into China reaching a new low in nearly thirty years.
Which two major items are these?
One is the "foreign equity investment" inflow of $62.1 billion in 2023, which, after shrinking by 47% in 2022, further decreased by 61%, bringing the annual inflow scale to a new low since 2005;
The other is the "related enterprise debt," which shifted from a net inflow of $20.5 billion in the previous year to a net outflow of $29.1 billion, marking the first annual net outflow since data was first recorded in 1982.
How should we understand such changes?The former can be interpreted as the base number being too high. For instance, in 2020, when the COVID-19 pandemic swept across the globe, causing a major economic shutdown, global foreign direct investment plummeted by 44%. However, during that year, according to the UNCTAD口径 (that is, the Ministry of Commerce of China口径), direct investment in China increased by 6%, and the net inflow of direct investment in China according to the balance of payments口径 increased by 35%.
The stability dividends that China enjoyed during the pandemic have established a relatively high base for foreign capital. This has allowed China to be the first to enjoy the dividends of economic recovery, but it has also anticipated a certain amount of development momentum.
The issue of debt outflow, on the other hand, is influenced by global financial conditions and is highly volatile.
For example, over the past year, the United States and Europe have continued to raise interest rates aggressively. The high interest rates have made it difficult for some domestic companies to manage their cash flow, forcing overseas capital to flow back more quickly to address urgent needs.
In fact, the withdrawal of foreign capital is not a new phenomenon. Behind the data, it is not just "divestment" but also contains structural opportunities for the replacement of the old with the new.
For example, Suzhou, known as the "world's factory," once drew on Singapore's experience to develop the Suzhou Industrial Park under the spring breeze of reform and opening up, attracting a large influx of foreign capital.
In 2012, Suzhou reached its peak with actual utilized foreign capital of $9.165 billion, and Suzhou's GDP ranked sixth in the country that year.
However, after that year, Suzhou began to be accused of a "massive withdrawal of foreign capital." Renowned foreign enterprises such as Nike, Adidas, Lianjian, Honghui, Philips, Puguang, Huarui, Nokia, Zixing, Seagate, and Ji Cheng successively moved southeast.
By 2017, Suzhou's foreign capital had stabilized at around $6 billion. Compared to the peak period, foreign capital had withdrawn by about one-third.
At this time, voices began to say that foreign enterprises are withdrawing, and Suzhou's economy is doomed.But in reality? Suzhou's GDP surpasses itself year after year.
This is because, amidst a wave of foreign capital withdrawal, Suzhou has achieved the transformation of economic development, akin to replacing the birds in a cage.
The ones that left are traditional enterprises and labor-intensive ones like Nokia, Foxconn, Zixin Paper (coated paper), Seagate (traditional hard drives with magnetic heads), Omron (liquid crystal backlight boards), and JDI (liquid crystal panels).
What has risen instead?
From high-end manufacturing companies like Philips and Panasonic to top pharmaceutical companies like Eli Lilly and Johnson & Johnson, well-known foreign investments continue to settle and increase their capital in Suzhou Industrial Park.
Domestic innovative pharmaceutical leading companies represented by BeiGene and Hengrui Biopharma are also on the rise, with local emerging industries shining brightly.
From this perspective, for businesses, transferring mid-to-low-end processing and manufacturing segments based on cost factors such as labor, land, and tariffs is a phenomenon that aligns with economic laws.
What local governments need to do is to guide and develop with the trend.
Extended to the whole of China, our use of foreign investment should also follow the same trend.
Although the actual amount of foreign investment used has decreased, the scale of foreign investment used in advanced manufacturing and high-end service industries, which represent the trend of industrial upgrading, is actually increasing. Data shows that in 2023, the actual amount of foreign investment used,High-tech manufacturing industry, with a year-on-year growth of 6.5%
Medical equipment and instrument manufacturing industry, with a year-on-year growth of 32.1%
Electronic and communication equipment manufacturing industry, with a year-on-year growth of 12.2%
High-tech industries attracted investment of 423.34 billion yuan, setting a historical record with a proportion as high as 37.3%...
In the first half of this year, this trend continues to strengthen.
Take Samsung of South Korea as an example, although in recent years Samsung has successively closed its mobile phone, computer, and TV factories in China, shifting production capacity to India and Vietnam.
However, at the same time, Samsung has accelerated the layout of high-tech industries such as chips, OLED displays, and new energy batteries in China, increasing the proportion of high-tech industries in its total investment in China from 50% to 80%.
It can be said that foreign investment is not entirely "gone", but rather "optimized". The logic of market allocation is still in effect.
Of course, no matter how it is understood, it is a fact that the actual amount of foreign investment used in China has decreased since 2023, and the reduction of foreign direct investment (FDI) is also a fact.
At a critical period of global investment decline, intensified international competition, and acceleration of the shift between old and new economic drivers in China, we need foreign investment and foreign enterprises more than ever before.Although foreign-funded enterprises account for only 2% of the market entities in our country and contribute less than 10% to the GDP (data from 2021), they have made significant contributions to the economy:
- 1/10 of urban employment
- 1/6 of tax revenue
- 1/3 of industrial profits
- 2/5 of total import and export volume
- 1/5 of research and development investment
Especially, foreign enterprises are a key force in driving China's foreign trade exports.
Since 1998, the export volume of foreign enterprises has averaged around 45% of the total exports, reaching around 60% between 2003 and 2010.
According to the list of the top 100 exporting enterprises in 2019 published by the General Administration of Customs, there were 57 foreign enterprises, 30 private enterprises, and 13 state-owned enterprises.
Taking Foxconn's parent company, Hon Hai Precision Industry, as an example, in 2022, the three companies of Hon Hai Precision Industry in mainland China together created an export volume of 845 billion, surpassing 25 provinces in mainland China, which is approximately equivalent to the sum of 12 provinces in the central and western regions.In Yunnan, Ningxia, Qinghai, and other regions, foreign enterprises contribute more than 60% to exports, especially in Qinghai where the figure exceeds 90%, setting a national record.
The introduction of Tesla's Gigafactory in Shanghai has perfected the entire new energy vehicle industry chain in China, accelerating its progress to new heights.
The introduction of foreign enterprises such as HP in Chongqing has brought the entire industry chain, allowing this southwestern mountain city to become the world's largest laptop production base for nine consecutive years...
It is these foreign enterprises that have come from afar that have activated a more vibrant Chinese economy under the "catfish effect."
At present, there are some special disputes in the public opinion field, and xenophobic sentiments have emerged, which is worrying.
The urgent task is that we need to inject greater confidence into foreign investment.
Opening the door and developing the economy is indispensable for foreign capital. The history of reform and opening up is also a history of the Chinese economy resonating with foreign capital and achieving mutual benefits and win-win situations.
This valuable consensus should be continuously preserved and continuously strengthened.