As COVID-19 still spreads across the world, foreign-owned “Chinese factories” and “Chinese stores” are seeing steady growth in Shanghai. According to Shanghai Municipal Commission of Commerce, from January to November last year, a total of 6,167 new foreign-funded enterprises were established in the city, up 19.6% year on year; contractual foreign investment reached US$54.209 billion, up 14.9% year on year; foreign investment in actual use reached US$21.491 billion, up 12.9% year on year, and up 20.6% compared to the same period in 2019, with an average growth rate of 9.8% over the two years.

According to Shanghai Market Supervision Administration, in the first three quarters of last year, the city’s newly established foreign-funded enterprises with a registered capital of more than $30 million increased to 122 from 79 in the same period last year, an increase of 54%.

Business service industry and high-tech service industry take the lead in growth

Foreign investment saw both significant growth in “quantity” and quality, with further improvement in its structure. From January to November last year, foreign investment in actual use of the service industry reached US$20.529 billion, up 14.5% year on year, accounting for 95.5%. Investment in such fields as business service industry, high-tech service industry, real estate industry and commerce and trade industry continued to dominate, with their foreign investment in actual use accounting for 34.2%, 29.4%, 13.7% and 11% respectively, together accounting for 88.3% of the foreign investment in actual use of the city.

The business service industry registered the highest growth, with its foreign investment in actual use at US$ 7.341 billion, up 50.1% year on year, which was mainly contributed by investment companies, regional headquarters, and equity investment projects; the foreign investment in actual use of the high-tech service industry reached US$ 6.322 billion, up 13.9% year on year, mainly contributed by information services, research and development and technology services.

In November last year, the 4th China International Import Expo (CIIE) was held as scheduled, with a cumulative intended transaction value of US$70.72 billion on a one-year basis. The number of exhibitors from Fortune Global 500 companies and industry leaders exceeded that of the last edition, with a “return rate” of over 80%. Many exhibitors signed deals to invest in Shanghai and China at the CIIE. 

What is even more remarkable is that Shanghai's major sources of investment have continued to remain stable while the global foreign direct investment has suffered a significant reduction since 2020 as the pandemic deals a heavy blow to the world. From January to November last year, the top five sources of foreign investment, including China’s Hong Kong, Singapore, Europe, Japan and the United States, together invested an actual total amount of US$20.29 billion, totally accounting for 94.4%. Specifically, the actual investment from China’s Hong Kong and Singapore increased by 22.8% and 11% respectively. The actual investment from the U.S. stood at US$605 million, turning from negative to positive year on year, up 1.3%. In addition, RCEP member countries together invested US$3.207 billion in Shanghai, up 8.7% year on year, accounting for 14.9%.

Headquarters economy and major foreign-funded projects play a distinct supporting role

Since Shanghai became the first city in China to introduce a policy encouraging multinational companies to set up regional headquarters in 2002, it has maintained its position as the city with the highest concentration of regional headquarters of multinational companies in the Chinese Mainland. Although the pandemic has been spreading around the world, Shanghai’s “headquarters economy” has maintained its strong momentum:

The headquarters of Tyson Foods China, a Fortune Global 500 company, established its presence in Hongqiao International Central Business District early last year; PepsiCo Inc., which has taken root in China for 40 years, set up its headquarters of PepsiCo Greater China Region in Shanghai; TUV Rheinland (Shanghai) Co., Ltd. was upgraded to the Asia-Pacific headquarters, and LVMH’s Loro Piana and Fendi were newly recognized as regional headquarters of the multinational…From January to November last year, Shanghai saw 56 newly established regional headquarters of multinational companies (including 21 regional headquarters in Greater China Region and regions above) and 23 foreign-funded R&D centers. By the end of November, the city had set up a total of 827 regional headquarters of multinationals (including 158 regional headquarters in Greater China Region and regions above), and 504 foreign R&D centers.

As the first Sino-foreign joint venture in Shanghai, Schindler China has invested in Shanghai for more than 40 years, and became a sole proprietorship in 2001. Last year, Schindler Asia-Pacific R&D Center in Jiading was upgraded to a global R&D center, becoming another R&D center on the global level after Ebikon in Switzerland and Vienna in Austria.

“Stable foreign investment” is underpinned by major projects. From January to November last year, the number of projects with the actual foreign investment more than US$50 million reached 94, and the total foreign investment in actual use reached US$15.185 billion, accounting for 70.7%. Among them, there were 47 projects with actual foreign investment above US$100 million, and their total foreign investment in actual use reached US$11.922 billion, accounting for 55.5%.

Shanghai Legoland Co., Ltd. and Shanghai Legoland Management Co., Ltd. were established with an investment of US$ 550 million by the four parties of Shanghai Jinshan Urban Construction Investment Group Co., Ltd., Merlin Entertainments Group (UK), KIRKBI Group and CMC Inc. in February last year, one month earlier than expected. The two companies will work together to build Shanghai Legoland Resort, which will become one of the largest Legoland resorts in the world after it opens in 2024.

There is an overwhelming trend of consumption upgrade in China. Costco, a “veteran” club store from the United States, set foot in the Chinese Mainland market just two years ago, and opened its first store in Minhang District, Shanghai, in October 2019. In last year alone, Shanghai-based Costco (China) Investment Co., Ltd. decided to increase its capital twice, with a total capital increase of US$248 million. Supported by the capital, Costco significantly accelerated its pace of opening new stores. On December 8 last year, Costco in Suzhou established its presence on Chengji Road, Xushuguan Town, and in 2022, Costco’s second store in Shanghai will be opened in Kangqiao Industrial Zone, Zhangjiang Science City, Pudong.

Roundtable meeting for government-enterprise communication becomes a shining brand of “Shanghai Service”

The faith of foreign investors in Shanghai stems from the long-term trend of stability and momentum of growth of the Chinese economy and from Shanghai’s continuously optimizing business environment.

Regulations of Shanghai Municipality on Foreign Investment, which came into effect on November 1, 2020, requires the establishment of a sound mechanism for communication between the government and foreign-invested enterprises. With the participation of municipal leaders, the Municipal Commission of Commerce, together with relevant departments, organized a total of 20 roundtables for government-enterprise communication with foreign-invested enterprises last year, three more than the previous year. Altogether 180 foreign-invested enterprises and business associations attended the meetings and raised 175 issues or suggestions, with a solution rate of over 90%.

Roundtable meetings for government-enterprise communication have become an important platform for foreign-funded enterprises in Shanghai to reflect their problems and promote their solutions, and have also become a shining brand of “Shanghai Service”. Yuan Wei, CEO of Lego Brand Group, said that Shanghai has always been a popular land of great promise attracting foreign investment. “The unique industrial advantages, constantly optimizing business environment, and huge domestic market in Shanghai has greatly attracted foreign investors and given them confidence to explore deep in the Chinese market.”

During the “14th Five-Year Plan” period, Shanghai will implement the “Headquarters Capacity Enhancement Campaign” to continuously enhance the capacity of the “headquarters economy”. Since last year, the Shanghai Municipal Commission of Commerce (SMCC) has been, by referring to international practices and practices of sister provinces and cities, conducting field research in nearly 100 headquarters enterprises, holding more than 20 seminars attended by experts, staff from the SMCC and business departments of district governments, and then formulating the research report entitled Research on the Important Thought and Policy of Further Strengthening and Expanding Shanghai’s Headquarters-based Economy. Last year, a total of eight online & offline policy training sessions were jointly organized for foreign enterprises throughout the year by government organs such as customs, foreign exchange, human resources and social security. The cumulative total number of participants exceeded 1,200. Besides, in the fourth quarter of last year, the Shanghai Municipal Commission of Commerce, together with all the districts in Shanghai, carried out all-round services for more than 100 headquarters enterprises in the city based on the three lists of “cultivating capacity, increasing capacity and upgrading capacity...”

High-quality business environment is the driving force for the development of enterprises, without which foreign enterprises in Shanghai will not be able to “flourish.” According to the monitoring data about the operation condition of 12,000 foreign-invested enterprises on comparable basis, from January to October last year, the operation revenue of foreign enterprises in Shanghai increased by 17.2% year on year, the total amount of tax payment increased by 16.1% year on year, the total profit increased by 14.9% year on year, and the number of employees increased by 1.9% year on year. The number of employees has achieved positive growth for the third consecutive month.

 

Source: Jiefang Daily  

By Wu Weiqun