Shanghai bears the brunt of anti-globalisation and protectionism with sharp decline in FDI
Shanghai has borne the brunt of anti-globalisation with a sharp decline in foreign investment during the first quarter of this year, ratcheting up pressure on the city’s leaders to attract fresh capital influx from overseas investors.
The city received 18.5 billion yuan (US$2.7 billion) of foreign direct investment (FDI) from January to March, down 9.5 per cent from the year-earlier period, according to Shang Yuying, director of the Shanghai Commission of Commerce.
Contracted foreign funds – capital committed by investors that will be received in future – slumped 51.8 per cent to 51 billion yuan.
“This is a dire scenario that hasn’t been seen in the past 17 years,” the director told reporters on Thursday. “Anti-globalisatioin and trade protectionism had a negative impact on Shanghai.”
Shanghai, known as the mainland’s commercial and financial capital, has been the trailblazer in drawing foreign funds to fire up the local economy since Beijing adopted an opening up policy in the 1980s.
In the past two decades, foreign-funded businesses including hundreds of global corporate giants such as General Electric and Volkswagen, have played an important role in the city’s economic growth.
Output from foreign-invested companies accounts for more than a quarter of the local economy, the commerce commission said.
Nationwide, foreign funds received in the first quarter actually edged up 1 per cent to 226.5 billion yuan.
US President Donald Trump’s anti-globalisation sentiment has weighed on Shanghai’s economy even with the city’s development of the free-trade zone designed to facilitate cross-border investment and reinvigorate the most developed metropolis in China.
In the first quarter, Shanghai’s FDI represented just 8.2 per cent of the national total, falling far short of its expectation of a 15 per cent share.
FDI refers to the investment in the real economy and does not include funds going into stocks, bonds and equity-based derivatives.
Shanghai’s industrial sector is increasingly playing a diminished role in the local economy amid capital outflows that have seen companies relocate their facilities out of the city owing to its higher labour and land costs.
“Shanghai is switching gears to prepare for a new round of growth,” Shang said. “We want to be a pioneer in creating a more investor-friendly environment for global investors.”
The municipality is mulling new incentives to attract foreign investors which could bring more added value to the city’s entire industrial chain, said Shi Wenjun, a deputy chief of the Shanghai Commission of Economy and Information, without elaborating.
Over the past decade, Shanghai has been shifting focus from manufacturing sectors to financial services in line with its ambition to transform itself into a global financial centre.
However, the city said it welcomes foreign capital in high-end sectors such as plane-making, automobile and health care.
“It is a must for Shanghai, an international elite city, to have a big portion of manufacturing businesses in its local economy,” said Ray Lu, an investment director with Hotung Ventures. “Shanghai will likely lose its upward momentum with the absence of manufacturing businesses.”