Foreign investment in China is currently transforming its focus. Historically, foreign investment went into China to take advantage of low labour costs, manufacturing products for sale back into so-called ‘home markets’. This is the typical caricature of foreign investment in China. In truth, by 2015 the proportion of exports from China saw locally owned private enterprises surpass the volume by foreign invested enterprises. Eventually, as China’s domestic consumer economy expanded, many foreign-owned firms sold products not only to other global destinations but increasingly to China’s domestic market as well.
On the tail-end of the pandemic, we also saw many foreign enterprises increase the amount of repatriation of profits earned in China.
At the same time, investment from foreign firms in higher value-added areas has begun to emerge. There is likely to be much less foreign investment in labour-intensive activities. These factories won’t substantially augmented, unless they shift to higher levels of automation. Instead, China’s continued attractiveness to foreign investment will be underpinned by:
Its growing domestic middle class consumer market;
Its increasingly sophisticated manufacturing ecosystem and supply chain networks; and
Its increasingly advanced R&D capabilities.
In this interview with Xu Yawen, I go into some of these issues.
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