In recent years, foreign-funded enterprises in China have been facing challenges such as data outflow, merger review, reinvestment of profits, and policy uncertainty, leading to a continuous decline in investment willingness. In regions like the Pearl River Delta in Guangdong, as well as the Yangtze River Delta and Zhejiang in China, some foreign-funded enterprises and Chinese export enterprises have redirected their new production capacity to Southeast Asia, India, Mexico, and other places. According to sources close to the Chinese Ministry of Commerce, the outflow of foreign investment in the past few months has increased by about 30% compared to the same period last year. Senior Chinese officials have instructed Vice Premier He Lifeng to lead efforts to stabilize foreign investment.
Recently, the Xinhua News Agency reported that the Ministry of Commerce of the People’s Republic of China, the National Development and Reform Commission, and the Ministry of Finance have issued the “Action Plan for Stabilizing, Protecting, and Promoting the Utilization of Foreign Investment,” outlining 15 measures around expanding market access, enhancing the convenience of foreign investment, improving investment promotion levels, enhancing the foreign investment service guarantee system, and optimizing foreign investment management. The plan addresses issues such as foreign mergers and acquisitions, cross-border data flow, reinvestment of foreign funds domestically, establishment of foreign-funded research and development centers, financial risk management tools, and opening trial points for wholly foreign-owned hospitals.
An informant within the Chinese Ministry of Commerce, using the pseudonym Liu Li, revealed to reporters that the recent rate of foreign investment outflow surpasses what official public data indicates. She mentioned that a significant portion of new foreign investments are actually Chinese enterprises that register overseas and then reinvest in China. She expressed concerns about the ongoing trend of foreign investment outflow, stating that there has been a 30% increase in outflow compared to the same period last year, which is unprecedented in the past five years. The authorities are now urgently focusing on stabilizing German investments in China to avoid trade conflicts with Europe and the United States, while also considering the interests of American and South Korean investors in China.
Official data released by the Chinese Ministry of Commerce shows that from January to May 2026, there were 25,297 new foreign-invested enterprises established nationwide, representing a 5.3% increase compared to the same period last year. The actual utilized foreign investment amount was 327.29 billion RMB, marking an 8.6% decrease year-on-year. In May alone, actual foreign investment utilization increased by 5.9% compared to the previous year. Official data for foreign investment in the first half of the year has not yet been released.
Liu Li expressed skepticism regarding the foreign investment data released by the Ministry of Commerce for the period from January to May. She mentioned discrepancies in the figures reported by different provinces to the Ministry and noted that there used to be two sets of data – one for internal references and another for public release. However, in recent years, only one set of data is made public, with provinces inflating their numbers, and the Ministry of Commerce turning a blind eye to it.
Under the leadership of He Lifeng, the plan proposed to “accelerate the revision and introduction of regulations related to foreign investors’ merger of domestic enterprises, optimize merger management processes and payment requirements,” while strengthening inter-departmental supervision. The plan also advocates for “supporting pilot cities in free trade zones and national service industries to explore the establishment of negative lists for data outflows in more areas, implementing tax incentives for overseas investors to directly invest profits, and improving support policies for foreign-funded research and development centers.”
Liu Li noted that the official document highlights mergers and acquisitions, data outflow, and reinvestment of profits as key areas of concern, reflecting the considerations of foreign enterprises operating in China. She emphasized that foreign investors are not only interested in preferential policies but also focus on whether data can flow out and if assets can be withdrawn in the future. Many foreign enterprises are now diverting their new investments away from China.
According to reports, multinational corporations operating in China deal with sensitive information such as customer data, research and development data, supply chain data, financial information, and cross-border management systems. The compliance of data outflow directly impacts the headquarters’ management of businesses in China.
A scholar from Jiangsu, Liao Huai’an, commented on the latest “stabilizing foreign investment” plan announced by the Chinese government, mentioning that it merely patches together market access, capital movement, data management, research and development, and business environment to attract foreign investment. However, he believes this does not signify that the Chinese government will further open up the market. He stated that China’s openness and reform are essentially dead, as Xi Jinping lacks the intention of continuing market liberalization, evident from the increasing number of state-owned enterprises and the prevalent atmosphere of planned economy.
Liao Huai’an highlighted that once private enterprises develop into leading companies, they will gradually be transformed into state-owned enterprises, while struggling entities that are not profitable yet remain as private firms. He warned that with every state-owned enterprise that emerges, a significant portion of private enterprises will eventually collapse, leading to monopolies in the market dominated by state-owned entities.
Mr. Wang, engaged in foreign trade processing in Wenzhou, mentioned that in recent years, many foreign clients in the Pearl River Delta have redirected their orders to countries like Vietnam, India, and Mexico. Domestic orders are gradually shifting overseas, with many clients requesting suppliers to have production lines abroad to mitigate tariffs and political risks. The traditional manufacturing model solely based in China is changing.
Historically, the Pearl River Delta has been a hub for foreign-funded manufacturing and export industries in China, with cities like Shenzhen, Dongguan, Guangzhou, and Foshan being home to electronics, clothing, furniture, toys, household appliances, and component enterprises. The outflow of foreign-funded orders not only affects factories but also impacts upstream suppliers, logistics, packaging, labor services, and leasing industries.
Mr. Wang, who has been involved in cross-border trade for 20 years in Wenzhou, remarked that enterprises in the Yangtze River Delta are facing similar situations. He disclosed that many companies in Zhejiang and Jiangsu are exploring overseas factories due to customer requests to avoid trade barriers. However, local factories, such as his, are hesitant due to the high costs of relocating and unfamiliarity with the legal system in places like Vietnam. European customers are concerned with diversifying market risks.
The regions of Jiangsu, Zhejiang, and Shanghai have long been hubs for electronics, automotive components, precision manufacturing, and foreign-funded research centers. In recent years, to mitigate supply chain risks, some multinational and export enterprises have initiated the “China +1” strategy, whereby research and management centers remain in China, while new production lines are shifted to Vietnam, India, or Mexico.
Analyzing China’s recent frequent attempts to stabilize foreign investment, scholar Liao Huai’an pointed out that the Chinese government is simultaneously offering favorable conditions to attract foreign investment while adopting measures that are cautious and hostile towards foreign entities. This conflicting approach makes it challenging to balance these two objectives.