A recent report released by the Ministry of Commerce of China said that foreign direct investment in China increased by 9.8 percent year-on-year to 803.62 billion yuan (or by 5.4 percent year-over-year to $119.91 billion) between January to November 2017. In November alone, FDI jumped 90.7 percent to 124.92 billion yuan. After a series of measures to promote FDI inflow, China is expecting more foreign investment.
More than 70 percent of all FDI inflow in 2017 went to service industries. According to A Notice on Measures to Promote Foreign Investment (Document No.39)issued by the State Council in August 2017, schedules and roadmaps would be announced to further lower market access thresholds in service industries such as ship design, aircraft maintenance, international sea transportation, railway passenger transportation, business sites of internet access services, call centers, gas stations, artist booking agencies, banking, securities and insurance. It has already been announced that equity ownership restrictions will be eliminated in banking, securities and insurance industries within three to five years.
It has also been announced that China will allow wholly owned foreign invested enterprises in special vehicle and new energy vehicle manufacturing industry to be set up since June 2018 in Pilot Free Trade Zones in China. Although news on investing in China has not been confirmed by new energy vehicle giant Tesla, the phasing out of equity ownership restrictions in the industry has definitely made it more possible for it to set up its productions lines in China. While Tesla is still planning, BP has said it is investing 1.5 billion yuan more in China to expand its businesses.
After its revising up the projection of China's growth rate in 2017 from 6.5 percent to 6.7 percent in April, the World Bank has raised up its forecast again to 6.8 percent recently. The huge and rapidly expanding Chinese market is attracting more investment as the big market means a lot of opportunities. While some labor-cost-orientated investment is shifting to neighboring countries, new investment has been coming to seize the opportunities provided by the huge and upgrading consumption demand.
We hold an optimistic view on FDI inflow of 2018. As more open door policies will be released, business environment in China will become friendlier to foreign investment. It is true that local firms have become more competitive, but Chinese government has tried hard to provide a level playing field to all businesses. Not only national treatment is provided to foreign invested firms in operation, pre-entry national treatment to foreign investors has also been provided with exception of areas in a negative list since October 2016. Setting up a foreign invested firm has become much easier compared to one year ago. A new Foreign Investment Law is in draft and being examined by legislators. The new law will provide better protection for foreign investment and make the regulation regime more efficient and transparent.
The author Cui Fan is a professor at the University of International Business and Economics.
