Why Is the ‘Next China’ Still China?

In March, Apple opened its largest retail store on the Chinese mainland in Shanghai – the company’s second-largest flagship store after its Fifth Avenue outlet in New York. The new addition brings Apple’s store tally in Shanghai and the Chinese market to eight and 57, respectively – a significant milestone for the company that opened its first store in China in 2008. During his high-profile China visit, Apple CEO Tim Cook, who opened the doors to the new store in Shanghai and welcomed the first Chinese customers at the opening ceremony, reiterated the company’s steadfast commitment to the Chinese market. He said, “We are continuing to invest in China, in the supply chain, in R&D and in our stores.”

Interestingly, Apple is just one of the many foreign companies currently operating in the Chinese market that have demonstrated long-term commitment to the Asian giant in recent times. A report released in February this year by the American Chamber of Commerce in South China, representing nearly 1,000 companies operating across China, shows that 62% of foreign companies remain committed to the Chinese market. Among these, 66% of American companies indicated they have no plans to shift their investments out of China. According to the report, companies surveyed believe they receive a high return on investment in China and are optimistic about the future of the Chinese market. A whopping 90% of the polled American companies achieved profitability in 2023, and 88% of all foreign companies surveyed have already made a profit in the Chinese market, with 76% planning to reinvest in the country.

Against the backdrop of daunting challenges facing the global economy, exacerbated in recent years, foreign firms’ strong confidence in the Chinese market undoubtedly attests to the country’s resilient economic development that delivers growth, accompanied by enormous market potential and high-level opening-up. Ever since China started to reform and open up its economy in 1978, the Asian country, known for its colossal market with lucrative opportunities across various industries, has increasingly attracted foreign investment, becoming the preferred destination for global investors and an attractive market for foreign companies.

Recent data from China’s Ministry of Commerce show that newly-established foreign-invested enterprises in China in 2023 reached 53,766, up more than 39% over the previous year. According to the data, foreign direct investment (FDI) originating from France, Britain, the Netherlands, Switzerland, and Australia, expanded by 84.1%, 81%, 31.5%, 21.4%, and 17.1%, respectively.

The rising trend continues in 2024, with the number of new foreign-invested companies experiencing robust growth across the country. During the first two months of this year, 7,160 new foreign-invested firms were set up across China, up 34.9% over 2023, the highest surge in nearly five years. For the specified period, FDI from France, Spain, and Australia in the Chinese market soared by 586%, 399%, and 144.5%, respectively.

China’s high-tech industry, poised to remain a focal point for foreign investors, witnessed the establishment of 1,865 new foreign-invested companies in the first two months, up 32% compared to the previous year. Strides in science and technology innovation, identified as China’s new growth engine, and a core driver of the country’s high-quality development and modernization, are contributing to unlocking new opportunities for growth in key sectors, including agriculture, energy, and manufacturing. This makes China, home to some of the world’s biggest markets, such as the automotive market, increasingly attractive and competitive. In a recent example, on April 11, 2024, German car giant Volkswagen announced it will invest 2.5 billion euros ($2.7 billion) to expand its production and innovation hub in Hefei, capital of east China’s Anhui Province.

With a 40-year history in the Chinese market, VW’s recent investment demonstrates not just the company’s long-term commitment but also enhanced efforts to remain competitive in China, its most important market. China, which currently accounts for 69% of the world’s entire electric car sales, is a highly competitive market for both local and international brands. Ralf Brandstätter, chairman and CEO of VW Group China, said, “This additional investment in the (Hefei) site underlines our ambition to quickly expand our local innovative strength.”

Interestingly, the day after VW’s announcement, top U.S. aircraft manufacturer Boeing, with a long-standing partnership with China spanning 50 years, also put into operation its first joint venture in China. The expansion is expected to double production capacity at its Tianjin plant.

These recent commitments made by German and American industry giants to the Chinese market add to the long list of major foreign manufacturing firms, including U.S. chip maker Micron and Tesla, that have dedicated substantial resources to expand production capacities in China over the last year. The reality in China sharply contrasts with the overblown negative reports about the country’s supposed economic decline. Data released by the National Bureau of Statistics of China shows that high-tech manufacturing registered 7.5% year-on-year growth in industrial output during the first two months of 2024, up 1.1 percentage points from December 2023. For the same period, value-added industrial output increased 7% year-on-year, and retail sales of consumer goods reached $1.14 trillion, a 5.5% increase over the previous year.

China’s current economic indicators tell the story of a vibrant and diverse economy in transition. The country is moving away from an economy that relies heavily on investment and low-cost manufacturing to one that prioritizes high-quality growth. This new approach emphasizes domestic consumption, the production of high-end technology, the development of a digital economy, and the promotion of greener growth. This transition is largely underpinned by science and technology innovation. In just over a decade, China has made remarkable progress in innovation, rising from the 43rd place in 2010 to the 11th in 2022 on the United Nations Global Innovation Index, an annual ranking of innovation capacities worldwide. China, a leading global investor in research and development, second only to the U.S., and also the world’s top filer of international patents, has made substantial inroads over the last decade in leveraging innovation to fast-track the development of emerging industries and modern infrastructure on an unmatched global scale.

At present, the world’s second-largest economy is the fastest-growing and most dynamic market for emerging industries, including green technologies and the digital economy, leading to the rapid and large-scale deployment of various emerging digital technologies, such as 5G. A recent GSMA report reveals that this year, the proportion of 5G connections in China is forecast to expand from 45% to more than 50% and become the dominant mobile technology in the country, with more than 1 billion total connections by the end of 2024. By 2030, 5G connections in China will account for nearly a third of the global total. Meanwhile, 5G’s contribution to China’s GDP is expected to reach $260 billion.

China is dedicating additional resources to unlock the full potential of strategic emerging industries. The country is focusing on developing new quality productive forces that aim to boost productivity by strengthening science and technology innovation. This initiative will continue to open up new growth opportunities in the world’s second-largest consumer market, now and in the future, making China increasingly attractive for both domestic and international brands.

Given the examples and statistics above, and since you have read so far to the end, I hope you can see that China will continue to be a synonym of the best investment destination, and the “next China” is still China.

Alexander Ayertey Odonkor is a global economist with a keen interest in the social, environmental, and economic landscape of developed countries, emerging markets, and developing economies, particularly in the Asia-Pacific, Africa, Europe, and North America.