Global Times: Delving the truths of foreign investment in China

BEIJING, Feb. 10, 2025 /PRNewswire/ -- Some social media bloggers allege that "foreign investors are withdrawing from China on a large scale." How accurate is this claim? This is a question that a reader of people.cn posted, citing official data revealing that, for the whole year of 2024, the number of newly established foreign-funded enterprises in China increased by 9.9 percent year-on-year, while the amount of actual use of foreign capital in the country dropped by 27.1 percent year-on-year. "Do these two figures contradict each other?" the reader asked.

Let's ponder a market hearsay. Many people, time and again, are caught by "the news" claiming "Walmart is leaving China."

Is the claim true? Certainly not

Walmart-owned Sam's Club opened its 52nd store in East China's Wenzhou on December 18, 2024. More significantly, in the third quarter of 2024, Walmart's net sales in China grew by 17 percent year-on-year. This growth in China outpaced the 12.4 percent growth in international markets, according to the company's latest financial results report.

A business behemoth, which is frequently rumored to "withdraw from China," in fact has maintained steady sales growth in the China market. This actually tells a lot.

Walmart's case precisely reflects the changes in the huge Chinese market: Going with the trend of increasingly personalized and diversified consumer demand, and amid local retailers' rise, traditional business models are no longer feasible in China. Only those foreign enterprises that quickly adapt to and keep up with the changes in the Chinese market can achieve success.

In short, everything is evolving and changing fast, and the Chinese market is no longer what used to be. The interaction and relationship between China and foreign investment have evolved.

Is foreign investment necessary?

Before discussing whether there is a withdrawal of foreign investment from China, it is important to figure out whether China still needs foreign capital.

As a matter of fact, China has entered a new phase of high-quality economic development, moving from a capital-scarce economy in the past to one with ample financial resources, and shifting from a past focus on attracting foreign investment to a new paradigm of a balanced approach - placing even emphasis on both inbound and outbound investment. 

Some Chinese internet users claim that "now China doesn't need foreign investment as before."

Apparently, having abundant capital and Chinese companies' "going abroad" does not mean that China no longer needs foreign investment. Overseas investment remains an integral part in the course of China's accelerated construction of an open "dual circulation" system - a new development strategy that China adopted in 2020 that takes the domestic market as the mainstay while allowing domestic and foreign markets to always reinforce each other.

China in recent years has consistently introduced measures to expand opening-up on a larger scale and to a higher standard, such as by hosting the China International Import Expo and the China International Supply Chain Expo, reducing the negative list for foreign investment access, and granting national treatment to foreign investors.

As a result, the threshold for foreign investment entering the Chinese market is constantly being lowered, which can explain the rapid growth in the number of newly established foreign-funded enterprises in the country.

Why FDI has dropped?

Industrial investment is often a long-term economic action, influenced by many factors in the medium and long term. Therefore, fluctuations to some extent in the data accord with the economic law.

Since 2021, China has attracted annually overseas investment of over 1 trillion yuan ($136.9 billion) for three consecutive years. That large influx of foreign capital has led to a concentrated release of investment demand in the country. Naturally, a drop in overseas capital in 2024 falls within normal economic cycles.

"Recent discussions about foreign investment in China mainly stem from data showing a decline in the actual use of foreign capital in 2024. However, this change should be viewed rationally - China's inbound investment inflows remain massive in recent years, and last year's drop is relative to the high base seen in the past years," Tian Yun, a veteran economist, told the Global Times on Monday.

From a long-term perspective, global cross-border investment is showing a new trend toward service-oriented and light-asset-oriented, thus leading to periodic discrepancy between the scale of foreign investment usage and the number of newly-established enterprises. Currently, the scale of foreign capital utilization in China's service industry accounts for about 70 percent. The service sector has a clear light-asset attribute, which has a significant impact on the holistic size of foreign investment.

Where will 'next China' be?

The "Next China" is still China, which is a sentiment echoed by many multinational companies operating in the country.

The productivity factors have improved greatly in China, typically seen with the technological breakthroughs and a talent boom. The "world's factory" has obviously gained more added values.

A constantly developing China, with a strong growth impetus, is a coveted market place for many foreign investors. Nevertheless, in China's highly competitive market, foreign enterprises should bring their genuine competition skills to secure a foothold.

In recent years, some foreign enterprises that failed to keep up with Chinese market evolutions withdrew, whilst more high-tech foreign companies come in. "China's industrial upgrading, especially the rapid development of sectors such as electric vehicles, has reshaped the market competition patterns. A few foreign companies have struggled to adapt to the changes. They should step up effort to catch up," Tian said.

As always, China is serious to firmly adhere to opening-up and seeking win-win and mutual benefit with foreign investors. And, partnering with China means embracing future opportunities. "Investing in China is investing in the future," noted Guo Jiakun, the spokesperson from the Foreign Ministry.

SOURCE Global Times