Foreigners invest more in China’s advanced manufacturing even as total FDI drops

Despite an overall drop in foreign direct investment (FDI), China says more funds from overseas are being channelled into its advanced manufacturing sector.

“While FDI in the first half of this year was at a relatively high level if we look at it over the span of the past decade, frankly the scale of the investment has dropped on a year-on-year basis, mainly due to a high base from last year,” said Zhu Bing, director of the Foreign Investment Administration under the Ministry of Commerce, at a press briefing on Friday.

From January to June, FDI in China saw a 29.1 per cent year-on-year drop to 498.9 billion yuan (US$69 billion), according to official figures.

However, investment in manufacturing increased by 2.4 percentage points, totalling 141.86 billion yuan during the period and accounting for 28.4 per cent of all FDI in the first half of the year.

In particular, FDI in hi-tech manufacturing reached 63.75 billion yuan – also a 2.4 percentage point increase from the same period a year prior.

Zhu said the numbers show that foreign investors are “proactively managing their investment plans across industries”, and that China’s FDI landscape has entered a period of “adjustments”.

He added that the higher proportion of investment seen in manufacturing is indicative of China’s enhanced focus on improving the sector as a whole.

Beijing has tried to regain its allure among foreign investors by promising to remove market-access barriers in relation to a so-called negative list that outlines sectors off limits for foreign investment – including healthcare and telecommunications.

But without a confirmed timeframe for widening market access in more sectors, investors have been left waiting amid China’s weak domestic demand and economic slowdown. Surveys from a number of foreign chambers of commerce over the past year have subsequently shown how their confidence in China has taken a hit.

Zhu said on Friday that China would open up telecommunications, internet, education, cultural and medical sectors for foreign investment “in an orderly manner”.

China’s total FDI in manufacturing last year was 317.92 billion yuan, a 1.8 per cent dip from the previous year. Yet, FDI in hi-tech manufacturing grew 6.5 per cent in 2023.

The July-released figures highlighted that FDI in the manufacturing of medical equipment and measuring devices, as well as in professional and technical services, respectively surged by 87.5 per cent and 43.4 per cent in the January-June period, year on year.

Germany and Singapore’s investment in China grew 18.1 per cent and 10.5 per cent, respectively, in the first six months of 2024, commerce authorities noted in their July data release.

Meanwhile, China made non-financial outbound direct investments of 516 billion yuan in the same period, marking a 19.5 per cent increase from the year before.

China has not released FDI data in US-dollar terms for more than a year.