New Pressures on Foreign Direct Investment
The growth of foreign direct investment (FDI) in China has slowed in recent years,hit by a sluggish global economy and a reduction in the nation's cost advantages as a result of rising domestic prices. That is prompting China to adopt more proactive foreign investment policies. Under the banner of "building a new and open economic system," China is striving to make its investment climate more atttractive by opening its economy further to the outside world,cutting red tape and decentralizing government decision-making. In 2017 the international situation appears to be even more complex than in the recent past,and there are more sources of potential instability. The program to boost FDI also includes a deepening of nationwide reforms,an improvement of the tax system,an upgrading of infrastructure and a drive to make the legal and policy environment fairer and more transparent.
According to statistics of the Ministry of Commerce,China continued to see growth in FDI in 2016.
China's inflows of FDI were relatively stable in 2016 and the nation remained at the top of the list of developing countries in terms of attracting foreign investment. In 2016,there were 27,900 new foreign invested enterprises in China,up 5% from the previous year. The total of utilized foreign capital,excluding investments from banks,insurers and securities companies,amounted to 813.22 billion yuan,or US$126.45 billion,up 4.1% from 2015.
Among those investors,there were many large enterprises that undertook major projects. In 2016,there were more than 450 foreign-invested companies with capital increase projects of over US$100 million.Among the bigger projects were fresh commitments of capital in new materials,new energy vehicles and batteries,aircraft parts,medical equipment,and integrated circuits and chips. They also included the service sector,more specifically healthcare,old age care,e-commerce,cloud computing,bio-fuels,and technologies and their applications for the "internet of things." This demonstrates continued confidence in China's investment environment.
Hong Kong remained the largest source of foreign investment in mainland China. US and European investment showed strong growth,with utilized investment from the US and the 28 members of the European Union increasing 52.6% and 41.3% respectively over the previous year. Investment from Britain climbed 113.9%,while investment from Germany gained 80.9%,Luxemburg rose 125% and Sweden was up 43.8%. As far as investment from Asia was concerned,Macao and South Korea showed increases of 290.3% and 23.8% respectively while investment from Japan rose a modest 1.7%,reversing the sharp decline recorded over the past two years.
Solid gains were recorded in the service sector,high-end manufacturing and agriculture. In 2016,the total of utilized foreign investment in the service sector was 571.58 billion yuan,up 8.3% over the previous year and accounting for 70.3% of total foreign investment. Utilized foreign investment in computer applications surged 112.8%,while investment in distribution services and retailing increased 83.1%,information and consulting services gained 59.8% and comprehensive technical services were up 42.9%. Actual foreign investment in the high-tech service industry was US$14.86 billion for a year-on-year increase of 86.1%.
In the manufacturing sector,actual foreign investment in pharmaceuticals as well as medical equipment and instruments rose 55.8% and 95%,respectively. Foreign investment in the high-tech manufacturing sector was 59.81 billion yuan,for a year-on-year increase of 2.5%. From January to November,actual foreign investment in agriculture,forestry,animal husbandry and fisheries was 11.6 billion yuan,up 32.9%.
Foreign investment also was focused on free trade zones.Since 2013,Shanghai's Free Trade Zone and similar zones in Guangdong,Fujian and Tianjin have taken major initiatives to expand the business areas open to foreign investment. Utilized foreign capital of the four zones in 2016 amounted to US$13.68 billion,up 81.3% from 2015. The four zones make up only 5/10,000 of the nation's total land area yet they accounted for 10.8% of all foreign investment in 2016.
Utilized foreign capital in the eastern parts of the country - where all free trade zones are located --- was 704.7 billion yuan last year,up 7.6% over a year earlier. That accountied for 86.67% of the national total. Utilized foreign capital in the western regions was 62.69 billion yuan,up 1.6% and accounting for 7.71% of the national total while utilized foreign capital in the central region was 45.83 billion yuan,down 28.94% and accounting for only 5.64% of the total.
According to the Report on China's Investment Environment for 2016,which was issued by the China Council for the Promotion of Foreign Trade Academy,the shortcomings in the investment environment of the central region included poor infrastructure and transport services,weak communications networks and less reliable water and power supplies. The central region also ranked below other parts of the country in terms of policy environment,the degree of marketization in the economy,the degree of technological innovation,port efficiency,credit reliability and the overall living environment (including environmental protection and social stability).
From January to November 2016,wholly foreign-owned companies accounted for 67.36% of the foreign invetment capital while foreign joint ventures made up the remaining 24.44%. At the same time,there were 1,099 foreign-invested enterprises created through mergers and acquisitions,accounting for 4.5% of the total. This represented utilized foreign capital of 123.5 billion yuan for a year-on-year rise of 15.6%. Mergers and acquisitions play an important role in r