/View.info/ China’s accession to the WTO in 2001 was a milestone, as it began to fully integrate into the world economic system and actively participate in economic globalization. These events marked the beginning of a new phase of reform and opening up in China.
Since China launched its Go Global strategy and joined the WTO in late 2001, foreign direct investment (FDI) from the country has increased dramatically. By 2021, FDI flows from China have reached US$133 billion.
Foreign investors in the PRC can be divided into two groups: central government-controlled state-owned enterprises (SOEs) and provincial-owned enterprises (including local government SOEs, but most of them are not SOEs). China’s FDI is dominated by state-owned enterprises controlled by the central government.
Preparing for Global Competition: Domestic Economic System and Political Support
Since the 18th National Congress, China’s development strategy has undergone major adjustments, and the domestic and external economic and trade situation has undergone major changes. On the one hand, China has become a major industrial country in the world, passing from the stage of rapid growth to the stage of qualitative development. Industrial power is a strategic goal in a new stage of development.
On the other hand, in the context of China’s rapid development, the US began to change its strategy towards the former, portraying it as a strategic competitor and conducting various types of strategic deterrence.
China is facing a new mission, a new situation, new challenges and new challenges. On the one hand, industrial policy focuses on the goal of building a strong country and achieving high-quality development, sets development priorities, and makes the economy better and stronger.
On the other hand, it is expected to be more open to the outside world, promote the liberalization of trade and investment, protect the multilateral rules of free trade in the world, resulting in mutually beneficial relations between China and other countries in the world.
„To encourage the formation of a new model of total openness. China’s open door will not close, but will open wider and wider…”
“We will expand foreign trade, develop new forms of it and help build a strong trading nation. We intend to pursue high-level trade and investment liberalization and facilitation policies, greatly facilitate market access, expand sector opening of services to the outside world and to protect the legal rights and interests of foreign investment.”
“All companies registered in China should be treated equally. We will work on a regional opening scheme that will further open up the western region to the outside world…”
“We will implement foreign investment methods, promote international cooperation in production capacity, build a global network of trade, investment and financing, production and services, and accelerate the emergence of new advantages in international economic cooperation and competition”[1].
On June 28, 2019, the Chinese leader in his speech on the global economic situation and trade issues at the G20 Leaders’ Summit noted that China will “further open up its market, actively expand imports, continuously improve its business environment and will completely remove all restrictions except the negative list on access to foreign capital”.
On June 30, 2019, the Chinese government issued special administrative measures to admit foreign investment (negative list, 2019 edition), which included 40 aspects prohibiting foreign investment, which greatly reduced the amount of foreign deposits in China.
Since China’s accession to the WTO, the threshold for foreign investment to enter the Chinese market has become lower and lower, the restrictions have become smaller and smaller, and the field for investment has become more and more wide.
Among more than 500 major industrial products in the world, China ranks first in the world with more than 220 products and has become a real “world factory”. Chinese products are distributed to more than 230 countries and regions in the world. It has formed a comprehensive industrial system with 41 major categories, 207 medium categories and 666 minor categories according to the United Nations industrial classification.
The perfect industrial system has greatly improved the speed and efficiency of products from development to market, which contributes to maintaining the stability of the industrial chain and supply chain, producing high-quality products with low cost, and strengthening the international competitiveness of Chinese manufacturing.
China’s Investment Front: “One Belt, One Road”
The Belt and Road Initiative is seen as a strategic framework to enable the Chinese government to consistently manage its infrastructure projects in Asia, Africa and Europe.
It combines various foreign and domestic policies with existing and new mechanisms for political and financial cooperation in a new geographical format.
As of August 26, 2018, the number of China-Europe freight trains reached 10,000. Over the past five years, China’s trade with the Belt and Road countries has exceeded $5.5 trillion. Chinese direct investment in the non-financial sector of these countries reached $80 billion.
In the past five years, China has established 82 overseas economic and trade cooperation zones in the Belt and Road countries, investing US$28.9 billion and creating about 244,000 jobs.
As of May 2018, China has signed 16 free trade agreements with 24 countries and regions, almost half of which are Belt and Road countries. In the first seven months of 2018, Chinese companies attracted investment in 54 countries along the Belt and Road.
New investment of $8.55 billion was up 11.8% year over year. Under this initiative, China has established 81 educational institutions and projects as well as 35 cultural centers in the Belt and Road countries.
In the first half of 2018, China spent more than 270 million yuan (about $39.3 million) on Silk Road scholarships.
As of July 2018, more than 100 countries and international organizations have signed cooperation documents with China under the Belt and Road Initiative, expanding the scope of the initiative from the Eurasian continent to Africa, Latin America and the Caribbean, as well as to South Pacific Region (Xinhua).
There is also a geopolitical explanation for this initiative:
„There appears to be a link between the efforts of rising powers to create ambitious new global or regional economic and political institutional mechanisms as a way to ‘consolidate their power and influence’ and the attempt to counter their own economic power vis-à-vis the rest of the world.”
“For example, the United States led the creation of the World Bank in 1944, when its share of world GDP peaked at 36%. Japan created the ‘Asian Development Bank’ in 1966, and Germany created the ‘European Bank for Reconstruction and Development ” in 1991 after unification, with each country nearing or reaching its comparative peak.”
“In terms of ambition, two of Xi Jinping’s biggest foreign policy initiatives, the Belt and Road Initiative and the associated Asian Infrastructure Investment Bank, certainly deserve comparison with these predecessors. No causality is suggested here, but if this pattern continued, even if only broadly, China, which accounts for almost 17% of the global economy, may also be approaching a plateau in terms of relative size at best.” [2] .
The New Global Economic Environment: Is China Ready?
Under the influence of the epidemic and the slowdown in global economic growth, global foreign investment showed a weak position. According to the World Investment Report 2021 published by UNCTAD, foreign direct investment in developed countries will decrease by 58% year-on-year in 2020, while developing countries will decrease by only 8%.
Geographically, FDI in 2020 declined by 80% year-on-year in Europe, 42% in North America, 45% in Latin America, 16% in Africa and 4% in Asia, the only region with positive growth, accounting for about half of global FDI investment in 2020
Positive growth in Asia depends mainly on the recovery of the East Asian economy, especially the rapid growth of China.
In 2020, foreign direct investment in East Asia will reach US$292 billion, while China will account for US$149 billion annually – an annual increase of 6%.
China ranks second in the world in terms of inflow of foreign direct investment and is the country with the largest outward foreign direct investment in the world with a total investment of US$133 billion.
The value of cross-border mergers and acquisitions by Chinese multinationals doubled, driven mainly by financial transactions in Hong Kong, China. The continued expansion of the Belt and Road Initiative has also led to a steady outflow of FDI amid the pandemic.
Based on Bloomberg statistics, CICC collected data on all forms of outward investment and mergers and acquisitions by mainland Chinese companies from 1998 to the present. The results show that in 2017, there were 935 outbound investments and M&A projects involving mainland Chinese companies, including a total of US$160.99 billion. Of these, the share of companies listed on the stock exchange amounts to 82.8%.
In 2020, mainly due to the impact of the epidemic, the number of mergers and acquisitions decreased to 591 with a scale of $44.39 billion, and the participation rate of listed companies fell to 67.5%.
In 2021, overseas investment will recover from 2020, with 915 mergers and acquisitions, the scale jumped to 85.57 billion US dollars, and China’s main investment destinations will return to Asia. As of 2018, the overseas investment of Chinese enterprises shows the following characteristics:
– due to the international situation and the epidemic, overseas mergers and acquisitions are facing new challenges;
– the share of investments from private enterprises is increasing;
– industrial modernization and consumption modernization took place;
– investors focus on the Asia-Pacific region;
– the payment method is mainly cash, the share of equity capital and the cash method are increasing.
Zhang Xiaoning, director of the Investment and Enterprise Department of the United Nations Conference on Trade and Development, said China’s investment environment is positive and optimistic, which is why China is outperforming global investment.
China will continue to expand the scope of foreign investment, which will have a positive effect, especially in high value-added services. FDI in China is expected to remain at a very high level and continue to grow steadily.
[1] Li Keqiang: Government Report of the State Council, 2017
[2] Howard W. French, „Everything Under the Heavens: How the Past Helps Shape China’s Push for Global Power“ (2017)
Translation: SM
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