Multinationals Still Favor China as FDI Destination

Jul 15-2022   

In the first five months of 2022, China posted 564.2 billion yuan in actual foreign direct investment, an upsurge of 17.3% year on year. Some multinationals have moved production lines out, but more global firms are launching new factories, R&D centers, and regional headquarters across the country, according to a recent report by the overseas edition of People’s Daily.

In the report, Prof. Yu Miaojie, Associate Dean of the NSD, comments that China’s whole industrial chain has become an important magnet that draws capital-intensive multinationals to invest in the country. For such corporations, labor cost is but one factor in deciding where to set up shop. In comparison, what counts even more is the availability of a whole gamut of spare parts and the comprehensiveness of industrial segments along industrial chain.

Multinationals can also tap China’s abundant supply of innovative talents. The report cites statistics from the International Labor Organization which show that in 2021 China’s per capita labor productivity reached USD16,512, higher than that of Vietnam, India, Thailand, and Indonesia, among others. From 2010 to 2021, China’s labor productivity grew at 6.7% annually, superior to the global average of 5.1%. Prof. Yu says that China is building comparative advantages thanks to its large number of high-quality talents as well as high returns in labor productivity and digital transformation, which pulls in multinationals.

The report interviews the senior management of multinationals such as Freudenberg (a technological behemoth), Siemens and Schneider Electric, all of which are expanding investment and presence in China. Also noteworthy is the optimization of the FDI structure: growth in high-tech manufacturing is accompanied by decline of investment in labor-intensive, high energy-consuming, and high-polluting industries.