Foreign Direct Investment

According to the World Investment Report 2024 published by UNCTAD, FDI inflows into China decreased by 13.6% year-on-year in 2023, totalling USD 163.2 billion. Nevertheless, the country was still the second-largest FDI recipient in the world, accounting for 21% of global FDI. At the end of the same period, the total stock of inward FDI stood at USD 3.66 trillion. China is also the third-largest investor worldwide, with a stock of outward FDI estimated at USD 2.94 trillion. Among the top multinationals, the largest manufacturing investors in China include Hon Hai Precision Industry (Taiwan), BASF (Germany), and car manufacturers like Toyota (Japan), Volkswagen and BMW (Germany), and Samsung Electronics (South Korea). These companies have long maintained significant manufacturing operations in China. However, since 2019, they've reduced greenfield investments in favour of partnerships with local manufacturers, particularly in the EV market. Hon Hai and Samsung have reassessed their manufacturing footprint in China due to trade tensions. A large portion of their high-tech products, like chips and electronics, are produced in China and exported to the U.S. Hon Hai cut its greenfield projects in China from 23 to 6, while Samsung reduced its from 9 to 1. Both companies are now investing in new facilities in their home markets and countries like Vietnam, India, and Mexico. Official governmental data show that, in 2024, China saw 59,080 new foreign-invested enterprises, a 9.9% increase from the previous year. However, actual FDI utilization fell 27.1%, totalling CNY 826.25 billion (USD 115.56 billion). The manufacturing sector received CNY 221.21 billion (USD 30.85 billion), while the service sector attracted CNY 584.56 billion (USD 81.47 billion). High-tech manufacturing led high-tech sectors with CNY 96.29 billion (USD 13.42 billion), making up 11.7% of total FDI. Notable growth occurred in medical instruments (+98.7%), professional technical services (+40.8%), and computer and office equipment (+21.9%). Among source countries, Spain saw the largest increase in investment (+130.8%), followed by Singapore (+10.8%), Germany (+2.2%), and Switzerland (+1%).

In recent years, China has made significant improvements across various subcomponents, from streamlining the process for starting a business to enhancing electricity access and simplifying construction permit procedures. The country has implemented a series of reforms aimed at improving the overall business regulatory environment. These reforms primarily focus on improving the efficiency of business processes, including tax cuts, tariff reductions, and lowering barriers for foreign investors. To attract more foreign investment, China has introduced mechanisms to improve the implementation of major foreign investment projects, reduce import tariffs, streamline customs clearance, and establish an online filing system to regulate FDI. With a large pool of employees and potential partners eager to innovate, China remains an appealing base for low-cost production, making it an attractive market for investors. However, certain factors continue to pose challenges to foreign investment, including a lack of transparency, legal uncertainty, weak intellectual property rights protection, corruption, and protectionist policies that favour local businesses. The revised investment screening mechanism under the Measures on Security Reviews on Foreign Investments, which came into effect on January 18, 2021, was implemented without a public comment period or prior consultation with the business community. This move has drawn criticism from foreign investors, who raised concerns about the broad scope of the new rules, the absence of a threshold for triggering reviews, and the inclusion of greenfield investments—an approach that deviates from practices in many other countries. Furthermore, the introduction of guidance on Neutralizing Extra-Territorial Application of Unjustified Foreign Legislation Measures, similar to "blocking statutes" in other markets, has heightened concerns about navigating the complex legal landscape and complying with both host-country regulations and Chinese laws. Foreign investors have expressed frustration over national security-related legislation, which is increasingly seen as restricting market access in China. Additionally, on 1 November 2024, China issued revised regulations for foreign investment in its listed companies, lowering the minimum overseas assets requirement for strategic investors from USD 100 million to USD 50 million. Finally, the country ranks 11th among the 133 economies on the Global Innovation Index 2024 and 151st out of 184 on the latest Index of Economic Freedom. It also ranks 76th/180 on the 2024 Corruption Perception Index.