Executives are 'still positive' on outlook

Kearney survey of 300 firms ranks nation as good candidate for FDI

Global executives are still optimistic about the Chinese economy, ranking the country the second most attractive destination for foreign direct investment, a report showed on Tuesday.

The report, 2014 Foreign Direct Investment Confidence Index, was prepared by consultancy A.T. Kearney Inc. It surveyed C-level executives and regional and business leaders from 300 large companies in 26 countries spanning all sectors.

China came in second after the United States. China was in first place for 10 years, until 2013, when the US moved ahead.

The outlook for China is slightly better this year, with 39 percent of the respondents voicing more positive sentiment, compared with 38 percent last year and 34 percent in 2012.

"China in 2014 has the 10th most positive outlook among all countries, while China itself has only seen a higher score twice before (in 2005 and 2004). We can see that this year, global executives are still optimistic about the Chinese economy," said Johnson Chng, managing partner of A.T. Kearney Greater China.

The findings came amid worries that a slowing Chinese economy and global disputes would weigh on foreign investors' confidence, especially those from Europe and the US.

A survey by the European Union Chamber of Commerce in China suggested last week that nearly half of European businesses fear their "golden times" in China are over, while the US Chamber of Commerce recently noted that "concerns among US companies are intensifying" following bilateral tensions regarding information security and the impact of China's anti-monopoly campaign on foreign companies.

Despite the challenges and changes in the Chinese investment environment, Kearney indicated that there are still great opportunities for multinational corporations' direct investment in China.

"A large number of well-educated workers, research and development capabilities accumulated over the years and a big consumer market fueled by increasing affluence and urbanization indicate the potential of China," said Chng.

The low-cost fundamentals that reshaped China's economy are beginning to evolve, spurred by rapid wage increases, rising transportation costs and currency appreciation. Those trends have driven efforts to increase the share of consumption in the economy, he said.

Amid those efforts, many foreign companies are moving to serve local demand. They're shifting attention and investment to inland provinces, which now absorb 17 percent of FDI.

For example, US-based Wal-Mart Stores Inc plans to open 110 new stores and make changes to cater to the country's growing population of urban consumers. And Japan-based Toyota Motor Corp's joint venture - Sichuan FAW Toyota Motor Co - is expanding production in Chengdu to meet growing domestic demand.

Asked when their investment levels would return to pre-2008 crisis levels, nearly half of those responding to the Kearney survey said that would happen by 2015. More than one-third said it's already happened.

Given the estimate by JPMorgan Chase & Co that large companies globally are sitting on $5.3 trillion in cash, "we can conclude there is ample room for additional investment that can help jump-start the global economy", according to the report.

Chinese government figures show that last year, FDI in the Chinese mainland increased 5.25 percent to $117.59 billion.

Zhou Mi, a researcher with the Chinese Academy of International Trade and Economic Cooperation, a think tank at the Ministry of Commerce, said China has always held an open attitude toward foreign investment, but policies should be "more mature and regulated" in the future, taking account of national security and antitrust issues.

The ministry announced last Friday a three-month pilot program to simplify approval procedures for foreign investment, with the goal of encouraging overseas investment as economic growth slows.

Wang Tao, chief China economist with UBS AG, said the world's second-largest economy should experience a modest recovery this summer, the result of several small stimulus moves to revive growth.