刘诚：跃居全球最大外资流入国彰显中国韧性 - 2021-03-03

According to the latest Global Investment Trends Monitor released at the United Nations Conference on Trade and Development on January 24, the foreign direct investment (FDI) flows to China have seen growth against the downward trend in 2020, and China has overtaken America as the world’s top destination for FDI. This shows international investors’ confidence in China’s economic resilience, institutional environment for opening up and development prospects, and becomes a spotlight in global FDI flows.
Since the purpose of capital is to seek profits, the fundamental factor that determines the direction of FDI flows is the profitability of the destination country or economic resilience. Due to the Covid-19 pandemic, many companies suspended production in 2020, leading to partial disruption of the supply chain, and a decrease of 42% in global FDI flows. Although every corner of the world is affected by the pandemic, the governments differ greatly from each other in terms of the governance capability and economic resilience. With relatively slow recovery, the developed countries in Europe and America had negative growth. On the contrary, China has quickly contained the spread of the pandemic and implemented regular pandemic prevention and control measures, becoming the only country with positive growth among the world’s major economies in 2020. The stark contrast is also reflected in foreign investment data. In 2020, FDI flows to developed economies fell by 69%, among which those to America almost halved; those to developing economies declined by 12%, among which those to China rose by 4% against the downward trend. This is consistent with the changes in global landscape in recent years. The share of developing economies in global FDI is 72%, hitting a record high. Among them, China ranked first worldwide with a proportion of 19%. It can be said that instead of changing the global economic pattern, the pandemic has accelerated the evolution of the existing pattern of the world that is experiencing the changes unseen in a century.
China’s achievements indicate that the external environment has improved. Since America ignited the trade dispute with China, curbed investment in China’s technologies such as 5G, and hyped the Belt and Road Initiative as a debt trap in 2018, China’s foreign trade and investment environment has worsened, and didn’t improve until 2020. Amidst the spread of the Covid-19 pandemic across the world, countries in Europe and America mainly focused on how to deal with the pandemic and restore growth, so multinational companies turned to more pragmatic economic and trade activities with China. China’s steady economic recovery, huge consumer market and complete industrial chain have become the endogenous driving force for foreign investors to increase investment in the country, making it become a “safe haven” for foreign capital. According to a survey made by the German Chamber of Commerce in China in December 2020, most foreign enterprises in China have embarked on the road to recovery. Specifically, 72% of the enterprises in the survey have resumed full production, and a large number of them plan to increase investment in China.
More importantly, China’s opening-up system has won global investors’ confidence. In recent years, the rising unilateralism and trade protectionism has brought a backlash to economic globalization. In 2020, Europe and America further closed the door, and enhanced the investment scrutiny in the technology industry in particular. However, China has adhered to the path of globalization, and opened its door wider to the outside world. The 5th plenary session of 19th CPC Central Committee proposed to carry out all-round opening-up in more fields, with a broader range and greater depth. Since 2020, China has fully implemented the Foreign Investment Law and its supporting rules and regulations, shortened the negative list for foreign investment, drawn up the Master Plan for the Development of the Hainan Free Trade Port, and removed restrictions on foreign equity in securities companies and other enterprises. Moreover, China has signed the Regional Comprehensive Economic Partnership Agreement (RCEP) with ASEAN and some Asia-Pacific countries, and China-EU Comprehensive Agreement on Investment (CAI) with the EU. These measures have received warm welcome from global investors and boosted their confidence in investing in China.
On the whole, China has overtaken America as the world’s top destination for FDI. This is attributable to three factors, namely timely and effective response to the pandemic, continuous improvement of the external environment, and higher degree of openness. It reflects global investors’ acknowledgment of the Chinese government’s governance capabilities and economic resilience.
In the future, as the world’s second largest economy, China will play a more important role in the global growth, attract more FDI and keep optimizing the structure. On one hand, China’s prospects in economic growth and market demands provide guarantee for foreign investors’ expectations. According to forecasts of the World Bank, the International Monetary Fund and other institutions, China will continue to be a major engine for global growth in 2021, with a growth rate near or higher than 8%. Its efforts to strengthen the domestic market and expand domestic demands provide golden opportunities for foreign investors to establish factories in China. On the other hand, the improvement of the opening-up system will exert a profound influence by continuously improving the foreign investment environment and increasing investment profitability. The impacts of the pandemic and changes in the external environment lead to many uncertainties. In particular, international geopolitical uncertainties continue to exist after Biden became American president. However, as long as China keep improving the opening-up, optimizing the business environment, and reducing restrictions on foreign investment, there will be steady FDI flows to China. Moreover, with high-quality development of China’s economy, foreign investment structure will be improved, which has already been reflected in the data of 2020. In 2020, the actual use of foreign investment in service industry, high-tech industry and high-tech service industry increase by 13.9%, 11.4% and 28.5% respectively, much higher than the overall growth rate of FDI flows. Considering that the FDI flows to America nearly halved in 2020, it may rebound sharply in the short term and overtake China. But this won’t change the long-term trend of a steadily increasing amount of foreign investment in China.
(Author: Liu Cheng, Associate Research Fellow of National Academy of Economic Strategy, CASS)