Companies still lured by giant market, but factories' attraction fades
China's use of overseas capital increased in 2017 despite a global shift away from foreign investment, an outcome that one expert said showed the attraction of the nation's robust market demand. But he also warned that overseas investors are becoming more reluctant to enter the traditional manufacturing sector in China, opting instead to establish sales or marketing operations.
China used $136.3 billion worth of overseas capital in 2017, up 2 percent on a yearly basis, according to data the Report on Foreign Investment in China (2018), which was released during the China International Fair for Investment & Trade, China Central Television reported on Sunday.
According to the report, China used about $131 billion of overseas capital in non-financial sectors in 2017, a record high.
The increasing trend continued into 2018. In the first seven months of this year, 35,239 foreign-invested companies were established in China, up 99.1 percent on a yearly basis, data from the Ministry of Commerce showed in August.
The rising trend went "against the stream" as overseas investment fell globally in 2017 amid rising protectionism in the global context.
Global foreign direct investment fell by 23 percent in 2017, according to the World Investment Report 2018 published by the United Nations in June.
Li Xiaogang, director of the Foreign Investment Research Center at the Shanghai Academy of Social Sciences, said that considering the global decline, overseas companies' investment in China has been "active" and "a good phenomenon," he told the Global Times on Monday.
"This is because the gigantic consumer market in China is still of great appeal to them," he stressed.
But Li said that "in my observation, foreign investment in China is moving away from the capital-intensive model. Instead of setting up manufacturing plants in China, companies now favor commercial investment, namely, selling products or equipment."
"This is mainly due to the fact that the cost of manufacturing is surging very fast in China, causing overseas companies to consider other lower-cost Asian countries to set up manufacturing bases," Li said.
Ye Hang, an economics professor with the College of Economics at Zhejiang University, also said that many joint ventures in the eastern province's manufacturing sector had closed in the past five years.
Ye said rising costs and stricter requirements for environmental protection had driven these decisions.
"In recent years, I rarely saw the establishment of new joint ventures or solely owned overseas companies in Hangzhou or the surrounding cities," he said.
In recent months, however, several US companies, like the oil giant ExxonMobil Corp and Tesla, have moved to set up manufacturing plants in China.
Such investment is strengthening as the Chinese government is quickening steps to push opening-up in recent months, experts said.
For example, China has in June announced the 2018 version of the negative list for overseas investment, which shortened the negative list from 63 to 48, largely easing market access for overseas investors.
The government in June also announced plans to scrap the shareholding ratio restrictions on overseas investment in new-energy cars and special vehicles. Such restrictions will also be lifted for overseas investment in commercial car sectors by the end of 2020.
China's efforts to open up the market and improve the domestic business environment are a major reason attracting overseas capital to the country, according to experts.