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China Should Utilize the Advantages of Being a Huge Market

Feb 19-2021   



China topped the US to become the world’s largest FDI inflow country in 2020, according to a report by the UN Conference on Trade and Development. In contrast, the US saw its intake plummeting by 49% and for the first time in decades lost its leading position for inflow investment.

 

In a media interview, Prof. Yao Yang, Dean of the NSD, said that this comes as no surprise for China’s economic heft is approaching or even overtaking that of the US. Amid the pandemic, China led the world in economic recovery last year, making itself even more appealing to global investors. But the fundamental reason is the immense potential of China’s consumption market, buoyed by the steady income increase of its people. The current spate of rising FDI inflow differs from previous ones in that foreign investors have demonstrated real confidence in China’s development. For example, Tesla’s new factory in Shanghai primarily targets Chinese consumers.

 

Prof. Yao refuted the common belief that the Chinese economy is large but not strong. What’s often neglected, he said, is that a huge market means a huge adhesiveness that keeps foreign companies attached to China. This is where China’s strong.

 

The shift in FDI directions might impact on the political arenas on the two sides of the Pacific, but the extent is yet to be seen. The Biden administration is likely to be more rational than the Trump one, and American corporations and investors could lobby more for globalization. However, just like what happened between China and Japan in certain periods, warming economic ties might live side by side with cold political relations.

 

In contrast to surging FDI inflow, China’s FDI outflow remains limited in size, for instance, only accounting for around 5% of the EU’s total FDI inflow. It did grow for some time but was hit hard by Trump’s limitations, which the EU emulated. Now that a trade deal has been struck between the EU and China, a secure way is paved for Chinese firms to invest in Europe. Meanwhile, Prof. Yao argued that China should open up more to welcome European investors.

 

In 2015 and 2016, China tightened capital control in light of excessive capital outflow. But in terms of investment targets of Chinese companies, it is fundamentally dependent on American and European policies. Investing in high tech is the optimal choice for companies, even without the prodding of the government; however, the US and the EU might not want to see that happen, Prof. Yao cautioned.

China Should Utilize the Advantages of Being a Huge Market

Feb 19-2021   



China topped the US to become the world’s largest FDI inflow country in 2020, according to a report by the UN Conference on Trade and Development. In contrast, the US saw its intake plummeting by 49% and for the first time in decades lost its leading position for inflow investment.

 

In a media interview, Prof. Yao Yang, Dean of the NSD, said that this comes as no surprise for China’s economic heft is approaching or even overtaking that of the US. Amid the pandemic, China led the world in economic recovery last year, making itself even more appealing to global investors. But the fundamental reason is the immense potential of China’s consumption market, buoyed by the steady income increase of its people. The current spate of rising FDI inflow differs from previous ones in that foreign investors have demonstrated real confidence in China’s development. For example, Tesla’s new factory in Shanghai primarily targets Chinese consumers.

 

Prof. Yao refuted the common belief that the Chinese economy is large but not strong. What’s often neglected, he said, is that a huge market means a huge adhesiveness that keeps foreign companies attached to China. This is where China’s strong.

 

The shift in FDI directions might impact on the political arenas on the two sides of the Pacific, but the extent is yet to be seen. The Biden administration is likely to be more rational than the Trump one, and American corporations and investors could lobby more for globalization. However, just like what happened between China and Japan in certain periods, warming economic ties might live side by side with cold political relations.

 

In contrast to surging FDI inflow, China’s FDI outflow remains limited in size, for instance, only accounting for around 5% of the EU’s total FDI inflow. It did grow for some time but was hit hard by Trump’s limitations, which the EU emulated. Now that a trade deal has been struck between the EU and China, a secure way is paved for Chinese firms to invest in Europe. Meanwhile, Prof. Yao argued that China should open up more to welcome European investors.

 

In 2015 and 2016, China tightened capital control in light of excessive capital outflow. But in terms of investment targets of Chinese companies, it is fundamentally dependent on American and European policies. Investing in high tech is the optimal choice for companies, even without the prodding of the government; however, the US and the EU might not want to see that happen, Prof. Yao cautioned.