On June 22 (Monday), according to official statistics, the actual use of foreign direct investment (FDI) in China from January to May this year decreased by 8.6% compared to the same period last year. On the same day, the Chinese authorities released a set of 15 specific measures to attract foreign investment. Analysts believe that this move signals the Chinese Communist Party’s acknowledgment that the current challenge is not just “how to utilize foreign investment,” but rather “how to stabilize foreign investment.” However, these administrative measures may struggle to reverse the downward trend of actual foreign investment usage.
In recent years, factors such as China’s economic slowdown, the U.S.-China trade war, and increasing control over foreign enterprises by the Chinese Communist Party have contributed to a continuous acceleration of foreign capital leaving the country.
Data released by the Chinese Ministry of Commerce on June 22 showed that from January to May, the actual use of foreign capital in China reached 327.29 billion yuan, a decrease of 8.6% year-on-year. Despite this decrease, the number of newly established foreign-invested enterprises rose by 5.3% to 25,297 compared to the same period last year.
Foreign direct investment (FDI), commonly referred to as foreign capital, refers to economic investments made by foreign enterprises in a country or region to gain profit. Foreign capital is considered by the Chinese authorities as one of the crucial factors supporting the Chinese economy.
Currently, the Chinese economy is facing challenges such as a sluggish real estate market, worsening local debt crisis, lack of confidence among private enterprises, and weak domestic demand. In this context, the outflow of foreign capital will undoubtedly further weaken economic growth momentum.
Financial commentator Xiao Yi pointed out that the official data indicating a 5.3% increase in the number of foreign-invested enterprises does not align with the 8.6% decrease in actual foreign investment usage, reflecting a changing landscape in foreign capital structure.
Firstly, the increase in the number of enterprises does not equate to an increase in foreign investment inflows. Registering a foreign-invested enterprise does not have a high threshold, and some enterprises may consist of restructured existing companies, thus the number of enterprises cannot represent the scale of investment. For example, the investment brought in by a company like Foxconn could surpass that of hundreds of sales or consulting service companies.
Secondly, the decline in actual foreign investment usage indicates a reduction in large-scale investment projects. Projects like automobile factories, chemical bases, and semiconductor projects involve investments of tens or even hundreds of billions of dollars. However, in recent years, multinational companies have been moving new production capacities out of China, leading to a noticeable decrease in new large-scale investment projects in China.
Thirdly, the decrease in actual foreign investment usage also signifies a decrease in foreign capital reinvestment. A portion of the FDI in Chinese statistics comes from profits retained by foreign enterprises for reinvestment in China. In the past, foreign companies would reinvest most of their profits into capacity building. However, they are now transferring profits overseas or distributing them as dividends to the parent company, resulting in a decrease in actual foreign investment usage in the statistics.
On the same day, the Ministry of Commerce, the National Development and Reform Commission, and the Ministry of Finance issued the “Action Plan for Stabilizing, Strengthening, and Promoting the Utilization of Foreign Investment,” introducing 15 specific measures from five aspects: expanding market access, enhancing the convenience of foreign investment, improving investment promotion, strengthening the service guarantee system for foreign investment, and optimizing foreign investment management.
These 15 measures cover various areas, including opening up the service industry, the level of openness in the financial sector, foreign participation in the pharmaceutical industry development, merger and acquisition regulations for foreign investment, cross-border data flow management, promoting reinvestment of foreign capital, attracting foreign companies to establish R&D centers in China, enhancing the influence of the “Invest in China” brand, coordinating normative attraction of foreign investment projects, national treatment for foreign-invested enterprises, supporting foreign companies to participate in boosting consumption actions, optimizing the business network environment, service guarantees for major and key foreign investment projects, regional investment coordination, and enhancing the informatization level of foreign investment management.
Xiao Yi pointed out that the so-called “Action Plan for Stabilizing, Strengthening, and Promoting the Utilization of Foreign Investment” issued by the CCP is essentially an admission that China is not faced with the question of “how to utilize foreign investment,” but rather “how to stabilize foreign investment.” The core of the plan focuses on opening more industries to foreign investment, improving the business environment, and increasing government investment promotion efforts, rather than relying on market forces to attract foreign investment.
Xiao Yi believes that what determines the long-term flow of foreign capital are not these administrative measures, but three key aspects that multinational capital are most concerned about:
1. Market expectations – If the Chinese market is expected to slow down in terms of growth, even with preferential policies, the willingness of foreign investment will decline. Corporations seek profits rather than subsidies.
2. Geopolitical risks – Multinational corporations face not only commercial issues but also factors such as supply chain security, export controls, and technological restrictions. Especially in the context of the decoupling of high-tech industries between the U.S. and China, foreign investors must consider political and tariff risks.
3. Institutional credibility – The investment cycle of multinational corporations is often longer than 10 years, so they are more concerned about whether future policies are consistent, rather than short-term incentives. When even the commitments made upon entering the WTO are not adhered to by the Chinese government, let alone the regulations of administrative institutions that change every 5 years.
In conclusion, foreign capital values economic growth prospects, market demand, institutional expectations, and international environment the most. Therefore, the introduction of this plan is unlikely to reverse the downward trend in actual foreign investment usage.