China still attractive for FDI despite US tensions

Despite a recent 9.4% decline in China’s foreign direct investment (FDI) to CNY 987 billion (USD 138.3 billion) until October, there is an optimistic outlook for a resurgence in FDI, particularly in the services and advanced manufacturing sectors. UBS Wealth Management predicts that China will experience increased FDI from regions like the European Union, ASEAN nations, Brazil, Russia, and India, despite ongoing technological tensions with the United States that might limit American investments.

The dip in FDI earlier this year is attributed to global investment slowdowns and stringent regulations in the US tech sector. However, UBS Wealth Management, along with Deutsche Bank Group, anticipates a rebound in China’s FDI. The positive outlook is supported by expected strong annual economic growth for China, ranging between 5% and 10.4% over the next five to ten years. This growth is anticipated to be driven by factors such as increasing mass consumption, green policy initiatives, technological advancements, and industrial upgrading.

Key policies contributing to this positive trend include the expansion of free trade zones, liberalisation measures like easing QFII/RQFII rules for trading, and lowering barriers on foreign investment access through revisions to the negative list. Notably, investments from countries like Canada and France have increased during this period, and new foreign enterprise registrations in China have seen a rise of 1.10%. Despite broader trends, American direct investment in China has also climbed in the current year.

China is aiming for an annual economic expansion rate of 4-4.5% over the next decade, with a focus on trends in mass consumption, ecological innovation, and advancements in the technology sectors. These positive indicators suggest a favourable environment for foreign investment and economic growth in China in the coming years.