Shanghai FDI inflows miss expectations despite end of zero-Covid policy, sparking concern city has lost its allure
- The city, dubbed the ‘dragon head’ of China’s economy, received foreign funds worth US$12.78 billion from January to June
- Shanghai officials have been striving to attract foreign fund inflows after the government ended its zero-Covid strategy
The city, dubbed the “dragon head” of China’s economy, received foreign funds worth US$12.78 billion from January to June, up 7.1 per cent on year, mainly due to a low base in 2022 when a citywide Covid-19 lockdown severely disrupted manufacturing and commercial activities.
Economists had expected the country’s emergence from strict pandemic lockdown measures in January to spur a big year-on-year jump in FDI, with some estimates for growth topping 20 per cent.
“FDI was seen as a major growth driver for the local economy in this year’s first half,” said Ding Haifeng, a consultant at financial consultancy Integrity in Shanghai. “The numbers fall short of expectations and show that foreign businesses are taking a cautious stance on the local, and broader Chinese economy.”
Shanghai’s gross domestic product (GDP) expanded 9.7 per cent in the first half, compared to the city’s full-year growth target of 5.5 per cent for 2023.
The city’s bureau of statistics did not publish specific figures for the value of FDI each sector received in the first six months.
In early July, US vaccine maker Moderna signed an agreement with the Shanghai government to invest about US$1 billion in the commercial hub of China as it promotes mRNA (messenger ribonucleic acid)-based products in the world’s second-largest economy. The investment is targeted at vaccine development and manufacturing projects.
However, the committed investment has not been included in the first half FDI value as the funds have not been received yet.
Shanghai officials have been striving to attract foreign fund inflows after Beijing shifted from its zero-Covid strategy to living with the virus in January.
Shanghai has extended a broad olive branch to global companies, inviting them to invest in the city, which has traditionally been seen as a gateway for foreign capital and businesses to enter the mainland.
In April, the city’s government announced that it would encourage district-level authorities to offer a one-time cash award to new FDI projects and also to foreign investors who reinvest their profits in the city.
“Foreign businesses are not convinced of China’s growth story,” said Meng Tianying, a senior executive at Shanghai-based consultancy Domo Medical. “It remains an uphill task for Shanghai and China to draw more foreign funds in the coming quarters.”
China’s national economy grew by 6.3 per cent in the second quarter, below the 7 per cent consensus forecast, in a sign a recovery driven by the border reopening has failed to live up to expectations.
Last month, a report by the European Union Chamber of Commerce in China showed that 33 per cent of its members had Asia-Pacific headquarters in Shanghai, down from 40 per cent in 2022, in another sign that the mainland’s most developed metropolis may have lost its lustre as an investment magnet in the region.
