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Global foreign direct investment (FDI) flows in 2021 were UDS 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).
According to the World Investment Report 2022 published by UNCTAD, FDI inflows into China actually increased by 5.74% in 2020, to USD 149.34 billion, up from USD 141.22 billion in 2019 before a further increase to 180.95 billion USD in 2021. This was also the result of successful pandemic containment measures and rapid recovery. The stock of FDI in 2020 reached USD 1 918 billion, an exponential growth when compared to 2010 when the stock was USD 587 billion, before reaching 2 064 billion USD in 2021. The service sector led growth, accounting for more than 70% of inflows; FDI accelerated especially in technology-related industries. With the aim of boosting investment, the government expanded the number of industries open to FDI, lifted restrictions on foreign investment in key industries and amended the negative list for foreign investment in pilot free trade zones, which increased by 11%. M&A sales increased by 97 % (to USD 19 billion), mainly in the ICT and pharmaceutical industries. The value of new greenfield investments announced in 2021 contracted substantially in sectors such as transport and automotive. In 2020, China was ranked the world's second largest FDI recipient after the United States. The country is the largest recipient in Asia and the leading investing country in terms of FDI outflows. China's main investors have remained broadly stable. Inflows from the US and Europe have dropped, but regional investment has continued to increase as flows from ASEAN countries grow. Singapore, the Virgin Islands, South Korea, the Cayman Islands, Japan, Germany and the United States count among major investors. Investments are mainly oriented towards manufacturing, real estate, leasing business and services, computer services, wholesale and retail trade, financial intermediation, scientific research, transport, energy, and construction.
China made improvement in a wide array of subcomponents ranging from procedures for starting a business to measures to improve electricity access and get construction permits. The country demonstrated reform agendas that aim to improve the business regulatory environment in the country over the course of several years. The reforms mainly focus on increasing the efficiency of business processes, such as tax cuts, trade with tariff cuts, and reduced barriers to foreign investors. In order to attract further foreign investment, the country has introduced mechanisms to improve the delivery of major foreign investment projects, reduce import tariffs, streamline customs clearance, and establish an online filing system to regulate FDI. With a wealth of employees and potential partners eager to learn and evolve, the country is a base for low cost production, which makes it an attractive market for investors. Nevertheless, certain factors can hinder investments, such as China’s lack of transparency, legal uncertainty, low level of protection of intellectual property rights, corruption or protectionist measures which favour local businesses. FDI inflows to the high-tech sector have been rising significantly and currently account for almost a third of total inflows.
In the first half of 2022 inflows were already reaching 147.78 billion USD (OECD FDI In Figures, October 2022)
The country is ranking 50th amongst 82 countries reviewed in the latest Economist Intelligence Unit business environment rankings for 2022-26. As China continues to lead the global recovery from the adverse economic effects of the COVID-19 pandemic, foreign multinationals are doubling down on their investments in China, establishing thousands of new firms and expanding existing ones. Despite economic and financial tensions and a series of foreign restrictions on the transfer of technology to China, China continues to attract record amounts both of foreign direct investment and inflows of portfolio investment into listed onshore Chinese equities and Chinese government bonds (PIIE, 2020). Total foreign investment in China for 2021 is likely to surge by double digits from a year earlier if current trends continue (China Ministry of Commerce, November 2021).
The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in China and Asia-Pacific in 2022 and 2023.
|Foreign Direct Investment||2020||2021||2022|
|FDI Inward Flow (million USD)||149,342||180,957||189,132|
|FDI Stock (million USD)||1,918,828||3,633,317||-6,914,969|
|Number of Greenfield Investments*||413||482||357|
|Value of Greenfield Investments (million USD)||33,637||31,716||17,966|
Source: UNCTAD, Latest data available.
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
|Main Investing Countries||2019, in %|
|The Mainland of China||69.7|
|Main Invested Sectors||2019, in %|
|Leasing and business services||16.0|
|Information transmission, computer services and software||10.6|
|Scientific research, technical service and geologic prospecting||8.0|
|Wholesale and retail trade||6.5|
|Transport, storage and post||3.3|
|Production and supply of electricity, gas and water||2.5|
Strong points for FDI in China include:
Some of the disadvantages for FDI in China include:
The Chinese government encourages investment in the following industries or sectors: high technology, production of equipment or new materials, service sector, recycling, use of renewable energies and protection of the environment. In addition, the country appears to discourage foreign investment in key sectors, for which China seeks to transform domestic firms into globally competitive multinational corporations and sectors that have historically benefited from state monopolies or traditionally of State. The government also discourages investments intended to profit from speculation (money, real estate, or assets). In addition, the government plans to limit foreign investment in resource-intensive and highly polluting industries.
The Law on Foreign Investments of the People's Republic of China, adopted at the second session of the 13th National People's Congress on 15 March 2019, has been in force since 1 January 2020. The new Foreign Investment Law seeks to address common complaints from foreign businesses and governments. The Law specifically prohibits the government and government officials from forcing transfer of technology, while technology cooperation on the basis of free will and business rules is encouraged by the state. Indeed, article 22 stats that the State shall protect the intellectual property rights of foreign investors and foreign-funded enterprises. The law also gives the possibility to foreign investors to receive the same treatment when they apply for licences (article 30) and participate in public procurement (article 16). The competent departments for commerce (Ministry of Commerce) and for investment (National Development and Reform Commission) are delegated major responsibility to promote, protect and manage foreign investment.
On June 23, 2020, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOF) jointly issued two "negative lists" (on Foreign Investment and Free Trade Zone Special Administrative Measures) and a draft edition of the Catalogue of Encouraged Industries for Foreign Investment. Compared with the 2019 edition (full list in Chinese available here), the proposed 2020 Foreign Investment encouraged catalogue has been further lengthened, with 125 new industries added and 76 previously listed industries amended. There are no major changes compared to the 2019 catalogue; it welcomes more FDI in the following three main areas of China: high-end production; production-oriented service industries; China’s central, western, and northeastern provinces.
|Country Comparison For the Protection of Investors||China||East Asia & Pacific||United States||Germany|
|Index of Transaction Transparency*||10.0||5.9||7.0||5.0|
|Index of Manager’s Responsibility**||4.0||5.2||9.0||5.0|
|Index of Shareholders’ Power***||5.0||6.7||9.0||5.0|
Source: The World Bank - Doing Business, Latest data available.
According to the Notice on Implementing the Policy of Inclusive Tax Relief for Small and Micro Enterprises, published by the Ministry of Finance in January 2019, China expanded existing preferential policies for small and low-profit enterprises. Companies with annual taxable income below RMB 1 million (US$147,290) per year can benefit from a preferential corporate income tax (CIT) rate of 20 per cent, they are only taxed on 25 per cent of their income, while the remaining 75 per cent is tax-free.
The 14 coastal cities are Dalian (in the province of Liaonong), Shanghai, Ningbo, Wenzhou (in the province of Zhejiang), Fuzhou (in the province of Fujian), Guangzhou, Zhanjiang (in the province of Guangdong), Beihai (in the autonomous region of Guangxi Zhuang), Tianjin, Yantai, Qingdao (in the province of Shandong) and Lianyungang, Nantong (in the province of Jiangsu). For the past few years, other cities have also been regarded as coastal towns profiting from the same status. Unlike the 5 special zones, these cities were not underdeveloped, but key industrial centres in China. Overseas investment has facilitated improvements to the infrastructure and the creation of new, more advanced ones.
In August 2019, China announced that it will expand the Pilot Free Trade Zones (FTZs) to six new provinces across the country. These are Jiangsu, Shandong, Hebei, Heilongjiang, Guanxi and Yunnan, bringing the total number of Chinese FTZs from 12 to 18.
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Latest Update: September 2023