Some industries are not struggling to attract foreign investment
While much has been written about foreign investors’ declining interest in China, there are still industries that investors are keen to explore. In this article, Hawksford’s Fabio Stella looks at some of the more encouraging foreign direct investment (FDI) trends in China.
As one of the main contributors to China’s economic growth and development since the start of the reform and opening-up period, foreign investment remains a key indicator when analysing the overall performance of the Chinese economy. Amid regional restructuring by multinationals seeking to reduce their reliance on China-centric supply chains, many investors are still cautious due to lingering geopolitical tensions — despite the end of COVID-19 restrictions. Although similar uncertainties had been a constant for the previous five years of macro-economic trends, as of 2024 they were accompanied by new worries about slowing demand and the real estate market.
While China continues to reform the policies that have driven its economic growth, some sectors have become particularly attractive to foreign investors and others have significantly reduced market access barriers.
Fast-moving consumer goods
China’s rapid technological advancements and culture of innovation in e-commerce have created unprecedented opportunities for international companies in the fast-moving consumer goods (FMCG) industry to engage with China’s vast consumer base. The disruptions caused by COVID-related restrictions on traditional retail channels, coupled with a surge in live streaming, have enticed more multinational corporations (MNCs) to capitalise on China’s consumer market through online platforms such as Tmall, JD.com, Pinduoduo, Xiaohongshu and Douyin.
Given the pivotal role of e-commerce and platform-based commerce in driving the country’s economic expansion, overseas investors recognise e-commerce as a crucial gateway to access China’s dynamic consumer landscape. The main areas of interest for foreign investors in China’s FMCG sector include food and beverage (with a particular focus on food supplements), pet care, household essentials and cosmetics.
Hydrogen, cleantech energy players are key components in China’s sustainable future
As China progresses towards a more sustainable and eco-friendly development path, global firms are seeking potential investments that align with the country’s green development drive. March 2022 marked the issuance of the first long-term plan to develop a national hydrogen industry by 2035, with guidelines on standards for producing, storing, transporting and using hydrogen released in August 2023.[1]&[2]
Similar to what happened with other green energy sectors in the past (for example, solar), China’s commitment to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060 is setting the scene for numerous investment projects. The Chinese Government is already implementing attractive policies and financial incentives to encourage the adoption of green energy and support more involvement of foreign-invested enterprises in green certificate trading and cross-provincial green power transactions. The sectors related to green development and low-carbon industries, such as hydrogen technologies that enable the decarbonisation of natural gas, are already part of the industries in which foreign investment is highly encouraged.
The new era of automation, high-tech and advanced manufacturing
China’s manufacturing sector actively fosters collaboration and knowledge exchanges with foreign industry leaders, focussing on the integration of cutting-edge technologies in automated manufacturing processes. Leveraging its world-class manufacturing infrastructure and highly skilled workforce, China stands out as a preferred destination for international corporations to establish production plants and facilities.
The Made in China 2025 initiative, a strategic national plan aimed at transforming traditional low-cost manufacturing into high-value-added industries, highlights priorities such as innovation, quality enhancement, sustainable practices and operational efficiency. As evidence of this push, China’s Ministry of Commerce recently announced a new batch of flagship foreign investment projects worth more than United States dollar (USD) 15 billion in sectors ranging from automotive and robotics to power and energy storage, biomedical and new materials. Furthermore, a shortened Negative List[3] with restrictions on manufacturing demonstrates China’s continued willingness and ongoing efforts to attract foreign investment and stimulate economic growth.
Investment products in high demand
China’s banking, financial services and insurance sectors have experienced significant growth in FDI in recent years. By the end of 2023, there were 888 business branches of foreign-funded banks, and 137 serving as either business branches or representative offices opened by overseas insurance institutions.[4]&[5] The country’s share of global growth and its burgeoning middle class have been the main engines in creating local champions. There is growing demand from an increasing number of high-net-worth individuals for a wider range of investment products, protection coverage and warranties in one of the most dynamic markets in Asia.
Foreign-run institutions are now able to own 100 per cent of their Chinese banking and insurance subsidiaries, attracting both new players to enter the local financial arena and existing investors to buy out their local partnerships and joint ventures. The expertise of foreign players in specialised products such as green and sustainable finance and green bond issuance is highly sought after and welcomed. The involvement of foreign players can also help China meet key national targets, such as making Shanghai a leading international financial hub by 2025.[6]
Building world-class healthcare and R&D facilities
Due to its aging population and the growing focus on access to high-level treatments and wellbeing, international providers of healthcare technologies, pharmaceuticals and medical devices are targeting China with ambitious plans. The Chinese Government has been implementing reforms to enhance its healthcare system and support the research of new treatments and biotech innovation. This has created an appealing environment for international businesses to offer expertise in the drive to improve the population’s health outcomes.[7]
Thanks to their extensive and historical presence in China’s pharmaceutical and biotech sector, global players have continuously invested in research and development (R&D) facilities, spurred the local mergers and acquisitions scene with joint projects culminating in acquisitions, and developed local distribution channels. China has become a leading market for the experimentation phase of some of the most innovative treatments targeting cancers due to the availability of large numbers of patients able to take part in trials. In the meantime, Chinese biotech and genetic research startups are forging ahead by venturing overseas to gain market access and wider recognition for their home-grown discoveries. As a result of their successful overseas collaborations, foreign partners will be encouraged to engage with Chinese businesses in the Chinese market.[8]&[9]
In conclusion, China’s recent technological achievements, and dedication to sustainability and economic reforms have encouraged foreign investment in several areas. In light of the intricate nature of the global landscape, foreign businesses are now undertaking comprehensive research before entering strategic markets, especially when doing so for the first time. While China’s commitment to addressing existing challenges to its sustainable growth is expected to provide renewed confidence to foreign investors, international electoral milestones are gradually clarifying the global political spectrum of this decade. The second-largest economy in the world still offers foreign investors a wide range of opportunities to explore. With cyclical events paving the way for renewed trade negotiations, there is still plenty of room for optimism about the long-term performance of FDI in China.
A version of this article was previously published by Hawksford.
Fabio Stella works as commercial director at Hawksford. A graduate of Peking University, his areas of expertise include manufacturing and trading operations, foreign direct investment and market access strategies in Greater China, and corporate restructuring and relocation projects.
[1] Nakano, J, China’s Hydrogen Industrial Strategy, Center for Strategic & International Studies, 3rd February 2022, viewed 25th July 2024, <https://www.csis.org/analysis/chinas-hydrogen-industrial-strategy>
[2] Kühl, C, Hydrogen set to be the next booming sector for Chinese cleantech, Science|Business, 18th April 2024, viewed 25th January 2024,<https://sciencebusiness.net/news/hydrogen/hydrogen-set-be-next-booming-sector-chinese-cleantech>
[3] Foreign investors eye more opportunities in China’s high-tech industry, Xinhua, 16th February 2024, viewed 25th July 2024, <https://english.www.gov.cn/news/202402/16/content_WS65cea7a2c6d0868f4e8e40a7.html>
[4] Finance official: Foreign institutions heavily engaged in China’s financial market, Xinhua, 26th January 2024, viewed 25th July 2024, <http://english.scio.gov.cn/m/pressroom/2024-01/26/content_116966510.htm>
[5] Qi, X, Foreign financial institutions highlight China market, opening-up efforts at 2024 Lujiazui Forum, Global Times, 20th June 2024, viewed 29th July 2024, <https://www.globaltimes.cn/page/202406/1314540.shtml>
[6] International Financial Center, Shanghai Government, updated April 12th 2024, viewed 25th July 2024, <https://english.shanghai.gov.cn/en-ThisisShanghai/20231207/9815a792b25f4c43bc1bbe69f61a817a.html – :~:text=As%20outlined%20in%20the%2014th,development%20of%20the%20national%20economy>
[7] Lo, K, China investment: Beijing hones in on biotech in fresh pitch to woo foreign business, SCMP, 14th August 2023, viewed 25th July 2024,<https://www.scmp.com/economy/china-economy/article/3231056/china-investment-beijing-hones-biotech-fresh-pitch-woo-foreign-business>
[8] Greeven, MJ, Global pharma invests in China on the strength of a booming national biotech sector, IMD, viewed 25th July 2024,<https://www.imd.org/ibyimd/asian-hub/global-pharma-invests-in-china-on-the-strength-of-a-booming-national-biotech-sector/>
[9] He, J, Li, V, and Niessner, J, PE and China biotech: Global M&A on the agenda, ION Analytics, 17th January 2024, viewed 25th July 2024, <https://ionanalytics.com/insights/mergermarket/avcj/pe-and-china-biotech-global-ma-on-the-agenda/>
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