Foreign Investment Pours Into China Despite Trade War, Pandemic

For all the talk of an economic decoupling between China and the U.S. and its allies, foreign companies continue to pour money into the Asian nation.

The coronavirus pandemic and trade tensions have highlighted the risks of over-reliance on China, prompting several countries to consider diversifying supply chains, with a potential knock-on effect on investment.

Yet the latest official data from China shows that hasn’t happened. New foreign investment is on track to set another record in 2020, hitting 94% of last year’s total by the end of November, according to Commerce Ministrydata released this week.​

Not only is that helping to drive the economicrebound, but with China reducing barriers to investment and the economy the only major one likely to grow this year, investment is set to continue flowing into the country.

“U.S. and other foreign firms will continue to invest in China as it remains one of the most resilient economies during the global pandemic and as future growth potential there remains stronger than most other major economies,” said Adam Lysenko, an analyst at Rhodium Group who researches Chinese investment.

The investment boom comes despite continued political uncertainty for foreign firms. The Trump administration has ratcheted up tensions in recent months, placing restrictions on Chinese businesses, especially in the technology sector. China’s policy toward the incoming Biden administration is still unclear. And aninvestment treaty between the European Union and China hasn’t yet been signed, although it’sgetting close.

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China is making a bigger effort to boost foreign investment. The government this week published ashortened list of sectors in which market access is restricted, and also said some international businesses would be able totap financial support.

Despite the outbreak of the pandemic and the unprecedented economic contraction in the first quarter, almost 19,000 new foreign firms were set up in the first seven months of the year, officialssaid in August.

The automobile industry is one that’s seen increased activity. China was already the world’s biggest car market before the coronavirus, and althoughsales areexpected to fall for a third year this year, global companies are looking to Chinesedemand to boost their fortunes.

Recent investment plans from carmakers
  • Daimler AG’s chief executive officersaid in an interview with the Financial Times in September that the company would invest in China, not Germany, and last month announced a $415 millionplan to build heavy trucks in China
  • Tesla Inc.started production at its first plant in China in January
  • Nissan Motor Co. isbetting on a recovery in Chinese demand to offset losses in other regions, aiming to lift output capacity by about 30% next year, the Yomiuri newspaperreported in October

In thefinancial sector, companies such as UBS AG, Daiwa Securities Group and Goldman Sachs Group have either taken control of their joint ventures in China, or are looking to do so as the industry is further opened up.

At the same time, a record $214 billion in foreign funds have poured into higher-yielding Chinese bonds and stocks this year. The currency is likely tocontinue to appreciate next year on those flows, even as the U.S. sanctions Chinese firms, works to stop pension funds investing in Chinese companies, and passes legislation that could stop them listing on U.S. stock exchanges.

Staying Put

Recent business surveys show many European and American companies are staying put in China, despite increasingcalls from various politicians to diversify their operations or return home. More than three quarters of the 200-plus U.S. manufacturers in and around Shanghai said they didn’t intend tomove production out of China, according to a September survey.

Read More
  • Wall Street Keeps Pushing Into China as Washington Balks
  • U.S. Businesses in China Not Heeding Trump’s Call to Return Home
  • Why the U.S. Can’t Easily Break China’s Grip on Supply Chains

The governments of Japan,South Korea and Taiwan have implemented policies to help reduce their economies’ reliance on Chinese supply chains and production, but with mixed results so far.

Taiwan has along-term plan to attract capital back home from China, though companies continue toboost their investment into the mainland as well.

In Japan, the government beganpaying companies this year to invest at home or in Southeast Asia, though there’s little sign that the subsidies have caused any firms to pull out of China so far.

“China doesn’t have to be worried or dissatisfied,” Japan’s new ambassador in Beijing,Hideo Tarumi,toldPhoenix TV last month. “We’re not asking Japanese companies to withdraw from China, but to diversify risks.”

— With assistance by James Mayger, Yuko Takeo, and Samson Ellis

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