China’s Economic Rebound is Attracting More FDI

The Western mainstream media has often lashed out against the Chinese government and the country, but that has not resulted in a negative impact on China when it comes to attracting substantial flows of inbound foreign direct investments (FDI).

According to China’s Ministry of Commerce, the nation welcomed 302.4 billion yuan of FDI for the first quarter (Jan-March 2021), surging 39.9 percent higher, when compared to the same time period last year. FDI inflows valued in US dollars stood at $44.86bn, rising 43.8 percent, year-on-year.

China has already surpassed the pre-pandemic levels of volume of inbound FDI from the same period, January to March, 2019 by over 24.8 percent. That’s a significant achievement considering the turbulent times and rocky geo-political landscape of our world today. A number of national and regional sovereign governments have imposed economic sanctions on Chinese officials and private enterprises connected to northwest China’s Xinjiang Uygur Autonomous Region.

Economic experts had expressed concerns that China’s outlook would begin to dim as the rest of the world begins to crawl out of lock downs, quarantines and strict social distancing measures stemming from the outbreak of the Coronavirus. But Western nations have not turned the corner like China has done to curtail the spread of the pandemic, while in Europe and elsewhere many countries continue to report high numbers of new infected cases.

China has barely been impacted by the virus in recent months and this explains why many foreign-owned companies and investors have poured huge cash flows into the country as they see the benefits of strong social stability, resilient domestic supply chains and manufacturing sectors along with soaring global demand for Chinese imports. China has withstood the virus when it was spreading from late December 2019 to early April last year. The central government of China had taken prompt actions by announcing the Wuhan Lockdown, implementing partial quarantines nationwide and blocking the free flow of inter-city transportation. Back then, so-called China experts from the West were cheering the pandemic as they hoped the virus would cause the collapse of the country.

But the countries of Europe and much of the Western world should have spent more time focusing on their own Covid prevention efforts since the virus had struck those nations with a terrible vengeance. China was the only major economy last year to see a rise of its GDP (gross domestic product) by the end of 2020 to 2.3 percent.

There’s also a common understanding among business people that “money chases after money.” Smart companies are trend spotters and they place their investment bets on perceived winners. China is holding the winning hand for the moment and the country will continue to attract more FDI since many other countries have struggled to rebound. But we should ask: What are the strengths of China’s economy and what are foreigners investing into? According to the Shanghai Daily, about 40 percent of FDI growth came from foreign companies expanding operations and investing into fixed assets, which includes real estate, manufacturing and infrastructure. Meanwhile, China’s services industry received 237.79bn yuan of FDI, an increase 51.5 percent, year-on-year and FDI to China’s hi-tech service industry rose 43.9 percent. Investments from southeast Asia rose 60 percent, countries aligned with the Belt & Road Initiative had 58.2 percent increase and investments from the EU rose 7.5 percent.

During the first quarter 2021, 10,263 new foreign-funded firms were opened and registered in the country. By reviewing the figures, we see China has deepened its business ties with ASEAN (Association of Southeast Asian Nation States). The RCEP (Regional Comprehensive Economic Partnership) is a free trade agreement signed last December by leaders of ASEAN member states, Australia, New Zealand, China, South Korea and Japan. China’s cross-border trade and investment activities have soared while its regional partners in southeast Asia’s are boosting their respective national economies. ASEAN participates in the BRI and that has delivered positive results for them.

Another bright shining star for China’s economy has been retail sales, which increased by 33.9 percent in the first quarter, year-on-year while fixed assets investments had risen by 25.6 percent. China has emerged as one of the leading drivers of growth for the global economy and that’s leading to a significant rise in imports for China, which in return boosts the manufacturing industry worldwide. Chinese people are going on shopping sprees as they have had stable labor market conditions. I have witnessed the rise of China’s retail sector first-hand. I go shopping on the weekends with my Chinese wife, Zhou Yawei, and our son Peter in the capital city. The shopping centers, department stores and outlets malls are bustling with many customers carrying bags loaded with goods.

Foreign investors should also take a closer look at China’s tourism and hospitality sectors. During the pandemic times, many Chinese citizens were required to stay in the cities and towns they lived and worked in. They were not permitted to travel to other cities or provinces; but in recent months China has re-opened intercity travel. The Chinese are eager to travel and there will be good business opportunities for companies investing into domestic tourism venues. China’s five-day May Day holiday is coming soon, May 1-5, and we will witness a huge upsurge of Chinese travelling to other cities within the nation’s borders. This will set the stage for a blockbuster season of vacation travel in China this year. They have waited a long time to become tourists again, although international travel restrictions may not be completely lifted until after the summer. And the delays in international travel could prove to be beneficial to China’s domestic tourism.

Another sector for foreign investors to explore will be China’s science and hi-tech industry. There have been rumblings that Washington stands prepared to lead its allies, from the UK, EU and Japan, to march ahead on imposing more sanctions on Chinese hi-tech firms and to begin the decoupling process with Beijing. But such threats appear as bluffs. Chinese technology companies are tightly integrated with Western-based tech companies and to decouple would inflict serious disruptions to the global economy. We may witness a backing down of the West’s tough stance on Beijing as they realize decoupling could cause more harm than good.

If the West turns around and embraces Chinese innovations in the hi-tech sector, you will see a big wave of fin-tech investments flowing into Shenzhen and its surrounding communities in Guangdong province, which is recognized as China’s Silicon Valley. The upsurge of investments into Chinese hi-tech will enhance 5G telecom networks, boost automated manufacturing, as well as making people’s daily lives much more convenient.

China’s economic rebound is marching full speed ahead and that will attract much more inbound FDI for the rest of the year.