Foreign Investment Steady Despite Sino-US Trade Row
The prolonged trade dispute between China and the US has raised concerns among foreign-invested enterprises. Foreign investors worry whether trade frictions will hurt China’s economic growth，whether the business climate overall will deteriorate or whether China will impose retaliatory restrictions on American or other companies. Opinions vary widely on the extent of the impact from the trade row. The US argues that it will “impose tariffs to drive American companies out of China,” while the World Bank’s Doing Business 2019，often seen as an investment bellwether，has stated that China’s business environment has actually been improving. In the article below，the author concludes that despite the damage to Sino-US trade relations，foreign investors still regard China as an attractive place for investment.
Negative Impacts
The Sino-US trade dispute has had a mixed impact on foreign investment in China. In examining investment trends it is essential to look at investment stocks and flows. If foreign invested enterprises close down，reduce production，and shift investment to other countries，that will reduce the foreign investment stock. However，Sino-US trade friction is not the only reason for the withdrawal of some foreign capital from China. Some of the other factors can be seen below.
Rising costs are the root cause of the outbound migration of manufacturing. China is no longer attractive for some types of manufacturing，particularly in labor-intensive areas. To cut costs，some companies have been shifting their manufacturing base to lower cost countries. It is an inevitable phenomenon in economic and industrial development. For example，Nitto Denko，one of the world’s top 500 companies，has closed its factory in Suzhou. Nikon，Fujitsu and Samsung have also moved their factories to Southeast Asia for cost reasons.
Some businesses have failed to keep pace with technological developments. Japan’s Omron found its LCD panels were severely affected by OLED panels in applications such as smart phones，televisions and automobiles. It saw its market share decline and finally had to close its Suzhou LCD panel factory.
Intensifying competition from local rivals is another factor. Samsung closed its network equipment factory in Shenzhen in April 2018 and its mobile phone factory in Tianjin in August of the same year. After those closures，the company had only its Huizhou mobile phone factory still in operation in China. Samsung has come under great competitive pressure from local brands in China and that has figures in its decision to shut some operations.
Multinational companies have also found it difficult to adjust to market demand in the Chinese market at times. In the Chinese automobile market，for example，the bulk of the demand is for sport utility vehicles and cars with a large engine displacement. After years of trying to compete，Suzuki Motor，which focuses on the compact car market，eventually called it quits and exited the China market. Its decision reflected an inability to cater to local market demand.
Management missteps – as well as other external issues – have also contributed. Olympus，the Japanese optical giant，closed its Shenzhen factory in May 2018 because of aging equipment，a financial scandal and restrictions on its export business. Political friction and cultural missteps have also plagued some foreign companies. Korea’s LOTTE Mart became embroiled in a political row over Korea’s stance on the THAAD (Terminal High Altitude Area Defense) missile defense project. Dolce and Gabbana ran into a firestorm of opposition from Chinese consumers after an advertising video led to boycotts of its products.
Some foreign investors already in the China market have been hesitating in committing to further investments amid uncertainties in Sino-US trade relations. It is not clear how long the trade friction will continue，and this no doubt will cap growth in investment totals.
Positive Factors
China has been taking steps to offset these negative factors and ensure that the business environment is attractive. It has been relaxing its controls over market access. It plans to reduce the number of items on the “negative lists” which bar foreign investment in certain areas of the domestic economy. This applies to the nationwide negative list as well as a similar arrangement for the nation’s free trade zones. Additionally，China is moving ahead with trial programs to open up the service sector. Moreover，China is trying to adjust the structure of foreign investment by encouraging the channeling of foreign capital into high-tech industries and the nation’s less developed central and western regions. It has publicized guidelines for this redirecting of investment in its Proposed List of Industries for Foreign Investment and Catalogue of Priority Industries for Foreign Investment in Central and Western China.
Additionally，China is trying to improve other aspects of the overall business environment. The Foreign Investment Law has already been promulgated. Authorities are also working on improving the central and local foreign investment complaint resolution mechanism to foster a “cordial，secure and profitable” business environment for all foreign investors. The government is also putting greater emphasis on intellectual property protection. It will implement a national strategy on intellectual property protection to guarantee the lawful rights and interests of foreign companies，enhance the credibility and efficiency of intellectual property examination，