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Country risk of China : Investment

Global foreign direct investment (FDI) flows in the first half of 2021 reached an estimated USD 852 billion, showing stronger than expected rebound momentum, with an increase of 78% of the partial-year growth rate on the previous year according to UNCTAD’s Investment Trends Monitor released on October 2021. The global FDI outlook for the full year 2021 has also improved from earlier projections. The current momentum and the growth of international project finance are likely to bring FDI flows back beyond pre-pandemic levels. Nevertheless, the duration of the health crisis and the pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty. Other important risk factors, including labour and supply chain bottlenecks, energy prices and inflationary pressures, will also affect final year results. (UNCTAD, October 2021). Covid’s impact on developing markets and shifting investment from China are major trends that will impact foreign investment in 2022.

According to the 2021 World Investment Report published by UNCTAD, FDI inflows into China actually increased by 6% in 2020, to USD 149 billion, up from USD 141 billion in 2019. This was also the result of successful pandemic containment measures and rapid recovery. The stock of FDI in 2020 reached USD 1 918 billion, an exponential growth when compared to 2010 when the stock was USD 587 billion. The faster return to positive GDP growth in the second quarter of 2020 and the lifting of investment restrictions helped support investment. The service sector led growth, accounting for more than 70% of inflows; FDI accelerated especially in technology-related industries. With the aim of boosting investment, the government expanded the number of industries open to FDI, lifted restrictions on foreign investment in key industries and amended the negative list for foreign investment in pilot free trade zones, which increased by 11%. M&A sales increased by 97 % (to USD 19 billion), mainly in the ICT and pharmaceutical industries. The value of new greenfield investments announced in 2020 contracted substantially in sectors such as transport and automotive. In 2020, China was ranked the world's second largest FDI recipient after the United States. The country is the largest recipient in Asia and the leading investing country in terms of FDI outflows. China's main investors have remained broadly stable. Inflows from the US and Europe have dropped, but regional investment has continued to increase as flows from ASEAN countries grow. Singapore, the Virgin Islands, South Korea, the Cayman Islands, Japan, Germany and the United States count among major investors. Investments are mainly oriented towards manufacturing, real estate, leasing business and services, computer services, wholesale and retail trade, financial intermediation, scientific research, transport, energy, and construction.

China was ranked 31st out of 190 countries in the the last World Bank's 2020 Doing Business report, a major improvement from 2019, when it was ranked 46th out of 190. China was one of the top 10 economies to improve the most between the 2019 and the 2020 reports. This progress reflects improvement in a wide array of subcomponents ranging from procedures for starting a business to measures to improve electricity access and get construction permits. The country demonstrated reform agendas that aim to improve the business regulatory environment in the country over the course of several years. The reforms mainly focus on increasing the efficiency of business processes, such as tax cuts, trade with tariff cuts, and reduced barriers to foreign investors. In order to attract further foreign investment, the country has introduced mechanisms to improve the delivery of major foreign investment projects, reduce import tariffs, streamline customs clearance, and establish an online filing system to regulate FDI. With a wealth of employees and potential partners eager to learn and evolve, the country is a base for low cost production, which makes it an attractive market for investors. Nevertheless, certain factors can hinder investments, such as China’s lack of transparency, legal uncertainty, low level of protection of intellectual property rights, corruption or protectionist measures which favour local businesses. FDI inflows to the high-tech sector have been rising significantly and currently account for almost a third of total inflows.

As China continues to lead the global recovery from the adverse economic effects of the COVID-19 pandemic, foreign multinationals are doubling down on their investments in China, establishing thousands of new firms and expanding existing ones. Despite economic and financial tensions and a series of foreign restrictions on the transfer of technology to China, China continues to attract record amounts both of foreign direct investment and inflows of portfolio investment into listed onshore Chinese equities and Chinese government bonds (PIIE, 2020). Total foreign investment in China for 2021 is likely to surge by double digits from a year earlier if current trends continue (China Ministry of Commerce, November 2021).

The latest United Nation Asia-Pacific Trade and Investment Trends Report provides additional information on FDI in China and Asia-Pacific in 2021 and 2022.

 

Investment Opportunities

Tenders, Projects and Public Procurement
Tenders Tiger, Tenders in China
Tenders Info: Global Procurement Facilitator, Tenders in China
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide
Setting Up a Company
Doing Business: China, to learn about procedures to start a business in China
Useful Resources
Invest in China (Ministry of Commerce of the People's Republic of China)
China Trade Portal
Asia Trade Hub
 

Business Setup Procedures

Setting Up a Company China East Asia & Pacific
Procedures (number) 4.00 7.25
Time (days) 8.50 29.73

Source: Doing Business.

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Latest Update: June 2022