Why Do Foreign Companies Continue to Invest in China Post Covid?
According to the Ministry of Commerce data, China's foreign investment absorption remained stable in 2022. The foreign capital exceeded 1.2 trillion yuan with a year-on-year growth of 6.3%. In January 2023, the actual amount of foreign capital invested nationwide exceeded RMB 100 billion yuan, with a year-on-year growth of 14.5%. Due to the comprehensive liberalization of foreign investment access restrictions, the investment attraction of China's automobile manufacturing industry increased by 263.8% in 2022. In addition, over the same period, the investment in computer communication manufacturing and pharmaceutical production increased by 67.3% and 57.9%, respectively.
Here, our PIM analysis team summarizes recent media-reported foreign investment projects:
3M is building a $2.5 million USD TRB conversion line at its plant in Hefei, Anhui Province, in the first quarter of 2023, aiming to provide more products to China's new energy vehicle manufacturers.
The Swiss technology company, ABB Group, opened a massive $150 million USD robotics factory in Shanghai with production and research facilities. Marc Segura, president of ABB's robotics division, said the company's digital and automation technologies will be deployed to build the next generation of robots, which will be supplied to markets in China and the Asia-Pacific region.
Amcor, a consumer packaging company based in Zurich, Switzerland, opened a new factory in Huizhou, Guangdong province, last week with an investment of nearly $100 million USD. Amcor reported the plant as China’s largest flexible packaging facility.
The German pump systems producer Wilo Group plans to invest in Changzhou, Jiangsu Province, with a new plant that will be put into production next year. Tu Limin, Vice President of China and Southeast Asia of Wilo Group said:" Once the new plant is operational, our products will be supplied to the China market and exported to other emerging markets."
In November 2022, Tyson told investors that half of the six new plants it expects to open in 2023 will be in China. Hormel Foods CEO Jim Snee also said the company plans to continue expanding its presence in the China market in 2024.
In the first quarter of the fiscal year 2023, Starbucks China continued its investment in the Chinese market, opening 69 new stores and entering ten new cities. Starbucks interim chief executive Howard Schultz also said Starbucks China would invest about 1.46 billion yuan over the next three years to build its first dedicated technology digital innovation center.
The reasons why foreign investors continue to be optimistic about the China market include the following:
Regarding policies, the Chinese government has been committed to improving the business environment and attracting foreign investment for economic development. The Foreign Investment Law of the People's Republic of China was enacted on January 1, 2020. On January 1, 2023, the Catalogue of Industries Encouraged for Foreign Investment (2022 Edition) came into effect. The catalogue has been expanded in recent years with extended to include health, sports, pension services, vocational training, and green energy. China has clarified its desire to open its high-tech manufacturing sector to foreign investors.
From a market perspective, China is the world's second-largest economy (GDP of $17.7 trillion at average annual exchange rates in 2021). In addition, China is geographically diverse and has a large population. The huge consumer base, future growth prospects, and economic resilience shown by the epidemic are important reasons why many multinational companies continue to invest in the China market.
Despite the downward pressure on the economy caused by the epidemic and the disruption of industrial and supply chains, China's economic prospects remain dynamic as the pandemic policies are adjusted, and the economy recovers. China's manufacturing purchasing managers 'index was 52.6 percent in February, up 2.5 percentage points from the previous month, according to data released by the National Bureau of Statistics on March 1st. The index has continued to improve since January and has been above the tipping point for two consecutive months.
Multinational companies that continue to invest in China will also adjust their business strategies in China. In the past, when foreign companies entered the China market, they only needed to introduce products, find local sales channels, and hire local talent to achieve localized production and operations. They improved their product portfolios, provided value-added services, and expanded into new channels and market segments to maintain their leading edges. With the rapid development of China's economy, Chinese local companies grew rapidly. They improved product quality, reduced production costs, and quickly occupied market shares, bringing competitive challenges to many multinational companies. China's rapidly changing market, diversified needs, and different market structures have brought new opportunities and challenges to foreign companies.
In the post-pandemic era, foreign-funded companies that choose to explore the China market deeply see the huge potential of the Chinese market. Still, they also need to quickly adjust their business strategies in the Chinese market to seize market opportunities with differentiated products and more flexible market strategies.
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