China warns ‘complex and grim’ external environment poses risk to stabilising foreign direct investment

New five-year foreign investment plan outlines more conservative growth target for coming five years, in light of economic uncertainties both at home and abroad
As Beijing vows to advance investment ties with other countries, analysts warn that deteriorating international relations and decoupling could impede effort

China economy

Orange Wang

Published: 12:00am, 23 Oct 2021

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China is expecting there to be modest growth in foreign investments into the country in the coming five years amid increasingly challenging international political and economic conditions, according to a new plan released by the Ministry of Commerce on Friday.

Meanwhile, Beijing also says it is focused on advancing investment ties with the European Union and the United States, such as by pushing for the signing and implementation of the China-EU bilateral investment treaty. And the ministry wants to “leverage the important role of Hong Kong, Macau and Taiwan” to woo overseas investors – an effort that it says will involve deepening cooperation between the mainland and Taiwan in key industries.

Beijing considers Taiwan a breakaway province and has said it will reunify the island by force if necessary.

The commerce ministry expects foreign direct investment (FDI) into China to grow to US$700 billion between 2021 and 2025, according to its 14th five-year foreign investment plan.

The new figure is a 0.2 per cent rise from the US$698.9 billion worth of FDIs made in the country in the previous five years.

It also reflects a more conservative growth target compared with the previous forecast of a 6.6 per cent increase for the 2016-20 period made in the 13th five-year plan, data from the commerce ministry shows.

The plan also acknowledges that bilateral relations and economic conditions pose unprecedented challenges to foreign investment in China.

“The current external environment for stabilising foreign investment remains complex and grim,” Zong Changqing, head of the ministry’s foreign investment department, said at a press conference on Friday.

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He attributed this to the lingering pandemic and deeply changing international industrial and supply chains that have resulted from “non-economic reasons” such as decoupling.

Still, Zong expected annual foreign investments to exceed US$160 billion for all of 2021 – at least a 10.8 per cent rise from US$144.37 billion last year – barring any further unforeseen changes to the global economy.

So far, FDI grew by 25.2 per cent in the first nine months of this year from a year earlier, to US$129.26 billion – a lower gain than the 27.8 per cent rise seen in the January-August period.

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Wei Jianing, a former research fellow at the Development Research Centre under the State Council – China’s cabinet – said it was hard to envisage a large amount of foreign investment coming into China due to deteriorating international relations.

“What we are worrying about is not only deglobalisation, but also globalisation without China,” he said at a virtual forum in August.

The commerce ministry’s new 32-page document comes as Beijing’s trade policies – particularly those related to its state-controlled enterprises and industries – faced criticism from the US and at the World Trade Organization this week. China’s inward-looking economic strategy has also sparked concerns among investors from the US, EU and Japan.

In the new plan, the ministry predicted that the weight of FDI in hi-tech industries would grow to only 30 per cent of the total by the end of 2025 – just 0.4 percentage points above the level last year – even though the new plan has placed a greater emphasis on investments in the sector.

The Chinese government also reiterated that it will further cut the negative list that restricts foreign investment; continue to open up its manufacturing, service and agriculture sectors to investors; and allow them to take control of their enterprises in more areas.

It has outlined policies to encourage more foreign investors in sectors that deal with integrated circuits; the digital economy; research and development; new materials; biomedicine; high-end equipment; and modern logistics.

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The plan also said more access will be granted to foreign investors in telecommunications, the internet, education, culture and health care, while Beijing intends to further open up financial sectors and relax the strategic investment conditions for high-quality foreign investors in listed companies.

Additionally, the ministry vowed to improve intellectual property protections and to grant equal opportunities for foreign companies looking to engage in government procurement and project bidding.

But it also noted that it will continue to strictly scrutinise foreign investments that could affect national security.

“[We need] to strengthen coordination [of national security reviews] with anti-monopoly and anti-unfair-competition reviews to build a solid defensive line on national security,” the document said.