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China’s Foreign Investment Rebounds

Posted by: Bruce Einhorn on March 16, 2010

Industry groups representing multinationals are grumbling again about China. They’re upset about new “indigenous innovation” policies encouraging the purchase of locally-generated technology. See, for instance, comments from the head of the Business Software Alliance in a story I wrote last week, “Software Industry Loses Patience with China.” Other industries are angry, too, as Forbes reports in this story, “Growing Bearish: U.S. companies despair of doing normal business in China.” According to Forbes, China used to go out of its way to encourage foreign investment. Now, “American business leaders in a range of different industries are ringing the alarm” as Chinese leaders decide they don’t need to worry so much about promoting foreign investment. Indeed, Forbes writes, “Beijing seems to have had a change of heart.” Throw in the problems Google has had with Beijing, China’s imprisonment of four Rio Tinto employees and foreign irritation with Premier Wen Jiabao’s hardline position on China’s currency and you seem to have a formula for foreign businesses to rethink their commitment to the People’s Republic.

The latest numbers on foreign direct investment (FDI), though, don’t quite support the argument that Beijing’s new policies are having much of a negative impact. FDI rose 4.86% in the first two months of the year, an increase that AFP interprets as “a sign of growing confidence in the world’s third-largest economy.” (We need to look at the first two months because the week-long Chinese New Year holiday was in January in 2009 and in February this year, thus distorting the monthly figures.) The two-month total of $14 billion is down from the $18.1 billion in January-February 2008, before the crisis hit. Still, the nearly 5% year-on-year increase is a good indication that, despite the complaints from some chambers of commerce about annoying policy changes from Beijing, companies remain keen on building up their China operations.

The bad news for the multinationals: The latest figures might make Chinese officials feel even more confident that Western businesses are just bluffing when they say China’s indigenous-innovation push is scaring away investment. For more on FDI in China and around the world, check out this slide show by my colleague Andy Reinhardt on the top 25 countries for FDI. China, as it has been every year since 2002, is No. 1.

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Reader Comments


March 16, 2010 09:11 PM

Let's be real. The multinationals complaining the most are always the LOSERS of the bunch! Every countries in the world will post hurdle for businessmen in various and different aspects. You think it's a cake walk to earn big money? If they find it "tough" to do business in China, they should try Africa/America/South Asia/Europe. See how easy, profitable their endeavor will be.

C. H. Ng

March 16, 2010 10:58 PM

This is not surprising and I would say everywhere is the same. When a nation initially needs foreign investments, she has to go all out to lure & encourage foreign companies to invest there. Once everything has more or less established, it's time to tighten or pull back some of the favorable terms given out earlier. This is natural.

In China's case, the latest FDI figure clearly shown that many foreign investors still see great potentials in that country, contrary to the protests & complaints by US companies. Maybe they got legimate claim of these latest new tough policies issued by the Chinese government. Whatever it is, as far as I can see, if one doesn't like the policy, he or she can just leave it. As foreign investor you always got a choice, the money is yours; you like what you see, go in. You don't like what you see, don't go in. Simple as that.

Henry L.

March 16, 2010 11:10 PM

How do we know that most of the FDI are from Western businesses? I've heard that a big chunck of the FDI going into China are from Taiwan. Do the Western multinationals really have a choice? let the Taiwanese go in there and let them get even more competitive than they already are?

Xiang Yu

March 17, 2010 04:01 AM

They can grumble all they want, but they still need China.


March 17, 2010 07:11 AM

Don't forget it was the overseas Chinese who started investing in China in a big way first, especially Hong Kong and Taiwan.


March 18, 2010 08:54 AM

The whole world's big businesses are going into China despite all the negative criticisms and scorn western journalists and the media poured on China for the slightest little thing that happened there. Everything the Chinese Government does is condemned. But I think there are some companies who would be rather keen or more than happy to see their rivals exit China like Microsoft when it comes to Google. Its for theirs to lose those who don't want to be part of the grand party - a super hyper market of 1.3 billion people. As for those like a few of those US congressman or women who seems to hate China very much, I think it all stems from some form of jealousy or perhaps rascism - one that cannot accept an Asian country or company being powerful of successful.


March 18, 2010 12:17 PM

I guess those complaining and the author itself forgot simple "supply vs demand" concept.


March 19, 2010 03:27 PM

Let's face it the left leaning US and UK media would love for western businesses to leave China and isolate that country, for a variety of hypocritically proclaimed reasons - human rights, pollution, corruption, currency manipulation...but of course we all know the true reason is fear and jealousy. The West is simply not ready to lose their world leadership position.

Why would any business care about Google's departure? A sanctimonious self-righteous monopoly who thought they have the right to dictate terms to a foreign government of a country they want to do business in. The only people upset about their departure are Google's shareholders, and the self-righteous liberal left dominating the media and US/UK governments. As a Microsoft share holder I couldn't be happier. Bing will be the biggest beneficiary. Hurry up and be gone Google! Don't let the door hit you on the way out.

But the talk of MNCs weary of China's currency manipulation is the biggest joke of them all. The cheap currency allows them to export more out of China, why would they complaint? It benefits them most of all.

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BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.

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