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Foreign Companies Invest More in China for New Opportunities
China's ongoing urbanization, consumption upgrading and shift to high-quality growth are generating new opportunities for foreign businesses
 NO. 45 NOVEMBER 8, 2018

Foreign companies are making more investment in China in a bid to take advantage of the new opportunities which arise from further opening up.

In the first half of 2018, China topped the world in drawing foreign direct investment (FDI), boasting $70 billion in capital inflows, according to a recent UN report.

The report issued by the United Nations Conference on Trade and Development (UNCTAD) said FDI flows to China grew 6 percent to $70 billion, or about 15 percent of the global total. In sharp contrast, the global sum during the same period slumped by 41 percent to its lowest in a decade.

"More intensive efforts in attracting foreign investment and opening up markets, such as the pilot free trade zones and the further opening of western regions, are the main reasons for the increase of FDI flows to China," James Zhan, Director of the UNCTAD's Division on Trade and Enterprises, said.

China is an attractive investment destination. Its 11 pilot free trade zones in September saw an FDI inflow increase of 14.7 percent, according to data from China's Ministry of Commerce.

Earlier in October, Dutch battery maker Lithium Werks BV announced the decision to invest 1.6 billion euros ($1.8 billion) in a lithium-ion battery plant in east China, the second of its kind. The new factory with an annual production capacity of 8 gigawatt-hours, sufficient for powering 160,000 cars, is planning to begin operation in early 2021.

"We're in China again because it moves faster than other countries. It makes decisions quickly," Chairman of the Dutch company Kees Koolen said.

The Dutch enterprise is not alone. Multiple companies signed investment deals during Chinese Premier Li Keqiang's visit to the Netherlands in mid-October.

Among them were Royal Dutch Shell PLC, KLM Royal Dutch Airlines, as well as the Internationale Nederlanden Group. The deals worth billions of dollars are for existing projects and new joint ventures with Chinese partners.

China has substantially slashed red tape, lifted restrictions and strengthened property rights protection for foreign investors. The State Administration of Foreign Exchange (SAFE) removed limits on FDI upfront payments and account validity terms.

"Our opening-up policy is consistent and applicable to all without discrimination," Li said during the Netherlands trip.

Western industry analysts report that China's plans to remove the ceiling for foreign ownership in auto joint ventures over five years mark "a major breakthrough." The largest German automaker Volkswagen, one of the first foreign carmakers to enter the Chinese market, is planning investments in China totaling 15 billion euros ($17 billion). They will largely focus on electric vehicles, automatic vehicles, digitalization and new mobility services.

"This year marks the 40th anniversary of China's reform and opening up policy," its China Executive Vice President Zhang Suixin said. "Now new measures and new rules are opening a new era for all foreign carmakers."

Zhang said a more open China means a fairer competition environment for foreign investors. China's new policy to further open up the manufacturing sector by removing foreign ownership restrictions is applicable to all.

In July, German chemical giant BASF announced an investment of $10 billion in south China to build a Verbund chemical production site. It will be the company's largest investment ever and also its first wholly owned plant in China.

An increasing number of small and medium-sized German enterprises are also searching for opportunities in China. Rudolf Scharping, former German Defense Minister, said that China is still "the most attractive for foreign investment" despite the rising costs of production, labor and land.

"Market size, the upgrading of technology as designed in Made in China 2025, ambitious workers, increasing skills—these advantages are coming to full effect as China's infrastructure is becoming much more sophisticated, the innovation power is developing and step by step, and the legal environment is improving," he said.

"Combined with the Belt and Road Initiative, China is an integrated and indispensable part of global economic development," Scharping added. He also noted that China is re-adjusting its growth model with the quality and sustainability of products, technologies and services at its core. He added that FDI will be more focused on this kind of development at both inbound and outbound level.

Official data show that in the first three quarters, FDI in China's hi-tech sector rose 6.8 percent and accounted for 22.5 percent of the total.

"China is constantly developing technology, especially regarding big data, which provides its new competitive advantage in earning foreign investment," said Shi Shiwei, a visiting professor of economics at the Free University of Berlin. According to him, the era of cheap labor in China is fading. The export-oriented labor-intensive industries and investment are tending to move out of China to its neighboring countries where there are cheaper workforces.

China's ongoing urbanization, consumption upgrading and shift to high-quality growth are generating new opportunities for competitive foreign businesses.

This is an edited excerpt of an article by Xinhua News Agency writer Qiao Jihong

Copyedited by Craig Crowther

Comments to dengyaqing@bjreview.com

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