Opinion | Why falling FDI in China may be no bad thing
The retreat can be attributed to the rise of more competitive Chinese companies and advances in indigenous technology
For a long time, foreign investment has been a key driving force of the country’s economic development. China has been working to attract such investment since the late 1970s. It was the introduction of foreign investment that ushered in a period of reform, opening up and socialist modernisation in China. Given the circumstances, should we be worried that the recent decline will cause China’s economy to slow further?
First, it’s worth pointing out that focusing solely on the withdrawal of foreign investments could be misleading. China is still a net importer of investment. In the past three decades, the value of China’s net FDI – that is, investments minus outflows – has always been positive. Moreover, China, with a total FDI inflow of US$163 billion, was still the world’s second-largest FDI recipient in 2023.
Even if foreign investment is really retreating, a more critical point is the extent to which such investments still affect China’s economy today. In other words, are they as irreplaceable as they were decades ago?
The answer is no, for two reasons. First, Chinese companies have become much more competitive, putting pressure on their foreign counterparts. Nikkei’s latest survey shows that Chinese companies gained the largest market share in 17 industries last year, lagging behind the US (26) but ahead of Japan (10).
