Foreign firms still betting on China

- Oct 16, 2018-

Editor's note: Once again, the judgment is being trotted out that China is experiencing an outflow of foreign capital based on the withdrawal of a few foreign companies. Is this really the case? Three experts share their views on the issue with China Daily's Liu Jianna. Excerpts follow:

Hard facts show FDI is on the up

Some labor-intensive industries are indeed relocating to other countries, especially Southeast Asian countries where labor costs are relatively low. Yet this is not a new phenomenon, neither is it a consequence of the China-US trade dispute, which has experienced many twists and turns over the last few months.

Given the rising cost of labor in China and the advancing of its industry upgrading, the shift of China's competitive advantage from inexpensive labor to its massive market scale is inevitable. So is the relocation of some cost-oriented and labor-intensive industries. Nonetheless, the government should help guide the relocation of foreign investment to avoid a huge shock to employment. Better still it should try to woo foreign capital to relocate to China's central and western regions where they will get more for their money.

In reality, China's actual use of foreign capital in the first eight months this year has reached $86.5 billion with a mild and steady year-on-year growth of 6.1 percent. Particularly noteworthy is the more inflows of market-seeking capital despite the decrease of cost-saving capital, showing a structural upgrading in China's attraction and use of foreign capital.

Meanwhile the United States has encountered a massive decline in its capital inflows. According to the US Bureau of Economic Analysis, foreign direct investment in the US has fallen to $51.3 billion in the first quarter, marking a steep drop of 37 percent compared with $89.7 billion in 2017 and a 65 percent decline with $146.5 billion in 2016. US President Donald Trump wished to promote the return of capital to the US, but massive tariff hikes have only served to deter investors from putting their money in the US.

But China still needs to improve its business climate. At the moment China ranks the 78th in the World Bank's Doing Business 2018 report, although it is expected to rise notably in the rankings over the next two years. To this goal all departments of the government are working strenuously at specific indicators. For instance, the General Administration of Customs has done a lot of work to facilitate trade and improve customs clearance efficiency.

Speaking of US companies in China, besides making huge profits for their home country they have also benefited China considerably by paying tax and helping with employment. So China is unlikely to target US companies in China to get back at Trump's aggressive trade policy.