Is foreign capital really withdrawing from China?

BEIJING,March 4, 2025/PRNewswire/ -- A report from People's Daily:

Lately, there has been much talk about foreign investors withdrawing fromChinaon a large scale. Official data show that in 2024, foreign direct investment in the Chinese mainland in actual use dropped by 27.1 percent year on year, while the number of new foreign-invested firms increased by 9.9 percent from a year ago.

Are these two figures in conflict with each other?

To answer this question, let's first delve into a story about Walmart's development in the Chinese market.

Over the past few years, retail giant Walmart has been actively closing locations acrossChina. Many people just feel like that"Walmart is withdrawing fromChina."But is this the whole picture? Certainly not.

OnDec. 18, 2024, Walmart-owned Sam's Club opened its 52nd store in Wenzhou, eastChina'sZhejiangprovince. More strikingly, in the third quarter of 2024, Walmart's net sales inChinaclimbed 17 percent year on year.

So how could a company that is allegedly"pulling out ofChina"maintain steady sales growth in the Chinese market?

Walmart's story highlights important shifts in the Chinese market: as personalized and diversified consumption has emerged as a new trend among Chinese consumers, and with the rapid development of Chinese domestic retailers, traditional business models are struggling to survive in the country. Only those foreign companies that adapt quickly to the evolving Chinese market can succeed.

Simply put, the times have changed. The Chinese market is no longer what it used to be, andChina'srelationship with foreign investment has also changed.

DoesChinastill need foreign investment?

Before discussing whether foreign investment is leaving the Chinese market, it is essential to clear up one question: Does China still need foreign investment?

Chinahas entered a new stage of high-quality development and has moved from capital scarcity to capital abundance. The country is shifting its focus from attracting foreign investment to a new strategy with equal emphasis on both"bringing in"and"going global."

However, some argue that"Chinano longer needs foreign investment as before"or even hyped up their narrative that"Chinais no longer welcoming foreign investors."

Apparently, capital abundance and"going global"do not mean thatChinano longer needs foreign investment. In fact, foreign capital remains crucial inChina's"dual circulation"paradigm - the new development pattern thatChinaadopted in 2020, which takes the domestic market as the mainstay while allowing domestic and foreign markets to reinforce each other.

Over the past few years,Chinahas introduced a range of measures for voluntary and unilateral opening up on a larger scale and at a higher level. For instance, it has hosted the China International Import Expo and the China International Supply Chain Expo, reduced negative lists for foreign investment, and granted national treatment to foreign-funded enterprises.

With lower entry barriers, more small- and medium-sized foreign-invested enterprises are entering the Chinese market, which can explain the rapid increase in the number of new foreign-funded enterprises in the country.

Why has the scale of foreign direct investment declined?

Industrial investment is a long-term, rational economic decision influenced by multiple factors in the medium and long term. Therefore, fluctuations in investment align with economic patterns.

In the medium term,Chinahas attracted overone trillion yuan($136.85 billion) each year in foreign investment for three consecutive years since 2021. The large foreign capital inflow has unleashed investment demand in the country, and the drop in foreign direct investment in 2024 falls within normal economic cycles.

From a long-term perspective, global cross-border investment is shifting toward service-oriented and asset-light industries, thereby leading to a periodic discrepancy between the scale of foreign investment in actual use and the number of new foreign-invested enterprises.

Currently, around 70 percent of foreign investment inChinaflows into the services sector, which is characterized by asset-light business models, thereby significantly impacting the overall scale of foreign investment.

The next"China" is stillChina.

How do foreign-invested enterprises view the Chinese market?

"The next'China'is stillChina."This is a sentiment widely shared by global investors.

Today'sChinais experiencing technological breakthroughs and a talent boom, which have led to a substantial increase in total factor productivity and more added value for the"world factory."The huge Chinese market has become a"global market,"stimulating domestic demand and providing immense opportunities for foreign companies.

Undoubtedly, a constantly developingChinawith strong growth momentum remains highly attractive to foreign investors. At the same time, inChina'shighly competitive open market, foreign-funded enterprises must bring their best expertise to secure a foothold.

In recent years, some foreign enterprises that failed to keep up with the changing Chinese market have withdrawn, while more high-tech foreign investors have come in.

As always,Chinaremains firmly committed to opening up and win-win cooperation with foreign investors.

No matter what, this remains true: partnering withChinameans embracing future opportunities, and investing inChinais investing in the future.

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SOURCE People's Daily