The unexpected outbreak of COVID-19 in 2020 spreads all over the world – China included – triggering an international public health crisis with an immense impact on social order and economic activity. The COVID-19 pandemic strikes the supply and demand sides hard, disrupting global supply chains, restricting people’s consumption, and reducing global production, trade, and cross-border investment.
As the primary country affected by this epidemic, and one of the world’s main import and export countries and sources of foreign investment, under the backdrop of increased anxiety, complexity, and complications in the current global economic situation, China’s foreign trade, and foreign direct investment (FDI) was considerably affected.
China like the rest of the world faced challenges
Data from the Ministry of Commerce of the People’s Republic of China (MOFCOM) shows that impacted by the novel coronavirus outbreak, foreign direct investment into this country plunged 10.8 percent year on year in the first three months of 2020 to 216.19 billion yuan. In March alone, foreign investment dropped 14.1 percent compared with a year earlier.
In this article, we look at the recent FDI data and discuss how China plans on stabilizing foreign trade and investment in the aftermath of COVID-19 limitations.
FDI and Trade data in 2022
China remains an excellent destination for global investment, as most recent data showed major economies including South Korea, the US and Germany continued to ramp up devotions to the Chinese market in the first half of this year, effectively debunking claims of capital outflow from China to other regions.
Although supply chains were affected in the first half of this year by the epidemic, China stayed a growth engine for global multinationals, and the Chinese government has sworn to make China a place where foreign enterprises dare to invest.
China’s actual use of foreign direct investment rose to 723.31 billion yuan in the first six months of 2022, up 17.4 percent year on year. In dollar terms, foreign investment in China increased by $112.35 billion, a gain of 21.8 percent, data from the Ministry of Commerce (MOFCOM).
China still attracts foreign investors and entrepreneurs
Primary economies remain attached to the Chinese market despite the fallout from the Omicron outbreaks, among other tensions. By source, South Korea is categorized first, with a growth of 37.2 percent, trailed by the US with 26.1 percent and Germany with 13.9 percent.
This data points to still-buoyant foreign investor enthusiasm in the Chinese market regardless of global despair at large. This denounced earlier reports that multinationals hailing from the United States of America and European countries are leaving the Chinese market and diverting their investment into other countries such as Vietnam and India.
The numbers say a lot about China remaining an attractive investment destination for international investors.
By category, MOFCOM said the basic use of foreign funds in high-tech industries saw a surge of 33.6 %.
South Korea’s exports to China were estimated at $13.4 billion in May this year, while imports from China surpassed $14 billion, according to South Korean customs statistics, remarking that China has been South Korea’s largest trading partner for 18 straight years.
As for the US, its investment in China is largely concentrated in the fields of new-energy vehicles and parts, as well as machinery and equipment.
Although there have been some investment discharges to Southeast Asian countries due to lower labor costs, it doesn’t conflict with their investment plans in China, which is more about the alliance in high-tech industries and in line with China’s innovation-driven improvement strategy.
It is doubtful whether this pace will continue through the rest of the year. Demand for Chinese exports in overseas markets has reduced as many countries return to normalcy after the COVID-19 lockdowns and consumers spend more on services and less on products.
Additionally, high inflation in numerous developed countries is making overseas consumers less inclined to spend on Chinese imports. The lazy import growth also implies weak domestic demand.
China measures for stabilizing foreign trade and investment in 2022
China’s policymakers have signified that stabilizing foreign trade and investment will be a crucial task to boost economic growth in 2022, so China has already rolled out several stimulus measures to improve the economy in the face of strict COVD-19 lockdowns, with a huge portion of the support going to small businesses and companies in hard-hit enterprises.
On April 29, a CPC top leadership meeting gave prominence to the need to expand high-level opening-up, noting that it is vital to actively respond to the needs of foreign companies and stabilize foreign capital and foreign trade.
China’s Ministry of Commerce (MOFCOM) has appointed a special working group on major foreign investment projects to help foreign companies coordinate and fix certain issues such as the resumption of production, personnel entry, logistics, and transportation during this latest Omicron conflict. The ministry also pledged that during the next stage, it will continue to closely handle the situation of the epidemic, cooperate with significant departments and local governments, and respond instantly to new problems reported by foreign companies.
Facing the current challenges that surpass expectations, China is expected to adopt numerous techniques to balance foreign investment throughout the whole year.
China will continue to embrace measures like closed-loop management and whitelists to promote the resumption of work and output in a systematic manner to solidify supply chains while resisting the epidemic simultaneously.
China has been ramping up efforts to promote opening-up, such as enforcing measures like the national foreign investment negative list. Meanwhile, China can centralize the ongoing market protection for foreign companies and further refine the business environment.
China can also utilize the major economic and trade exhibitions such as the China International Import Expo, the Canton Fair, and the Service Trade Fair to enhance investment promotion efforts.
Conclusion
FDI in China remains reasonably strong irrespective of the current challenges in the China market, and moreover support policies may compel more foreign investors to enter and expand into primary markets within China.
With regard to foreign trade, solidifying logistics chains and getting ports back to full potential may continue to have a favourable impact on trade numbers in the remaining months. Facilitating and accelerating customs procedures and setting up green channels for specific goods could also help to improve trade in certain sectors, and support for traders could give some much-needed short-term comfort.
On the other hand, the reduction in demand in both overseas and domestic markets may be harder to mitigate and will depend in part on the international macroeconomic outlook as well as the COVID-19 situation at home.
As China continues to open its door to overseas participants, more overseas fund management firms are reaching out to China to start their businesses which will considerably benefit the nation.
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