China’s eastern economic powerhouse of Jiangsu has become the first province to invite foreign businesses to take part in its strategic industrial chains, part of a national effort to retain and attract foreign investors. But analysts expressed concerns over the strategy’s long-term viability as geopolitical tensions intensify. In a fresh batch of incentives for overseas capital, Jiangsu – China’s second-largest provincial economy after Guangdong – called for overseas participation in “strengthening, supplementing, and extending industrial chains.” “Foreign-invested enterprises are encouraged to participate in open innovation and development across the entire biopharmaceutical industry chain, and to speed up the implementation of projects,” said the Jiangsu government in a document. For major projects worth more than USD100 million, land use will be prioritized and visa services will be facilitated for executives, technical personnel and other individuals from foreign-invested enterprises and multinationals. The Guangdong government also called for foreign participation in its industrial development in a document published in March 2023, although less explicitly.
“As Western countries exercise control over Chinese funds entering their vital supply chains for security reasons, foreign capital is also withdrawing from China,” said Peng Peng, Executive Chairman of the Guangdong Society of Reform. “Jiangsu’s initiative to encourage foreign companies to participate in these crucial supply chains carries significant symbolic weight. It represents a proactive effort to retain foreign investment.” He added that further observation is required to determine whether this measure is a temporary stimulant or a long-term reorientation, as both sides are balancing national security and supply chain interdependence.
“If the ‘decoupling’ strategy becomes entrenched in the West, the sustainability of China’s engagement policy will become challenging,” Peng said. An opaque policy environment and sluggish economic expansion have deterred foreign investors from scaling up their businesses in China, and rising geopolitical uncertainties continue to add risks to foreign trade, leading to an exodus of capital. Confidence among China’s foreign business community has also been eroded by an increasingly volatile regulatory environment. Despite a 74% rise in the number of newly established foreign-invested enterprises in January, foreign direct investment (FDI) in China dropped 11.7% on a year-on-year basis to CNY112.7 billion, the Ministry of Commerce (MOFCOM) said.
“Going forward, China will remain a bit selective,” Xu Tianchen, Senior China Economist with the Economist Intelligence Unit (EIU) said. “It will woo investors into industries where it has enough sway and domestic firms are already competitive. In areas where foreign participation undermines China’s pursuit for self-sufficiency and control over supply chains, barriers will probably remain.” He added that government incentives and the relaxation of FDI restrictions will mitigate some distrust over China’s operating environment, and participation in China’s supply chain could also be conducive to cost efficiency – as seen in the automotive sector, the South China Morning Post reports.
The industrial and financial metropolis of Shanghai announced the signing of 63 foreign investment projects with a combined value of USD6.47 billion, along with 34 new regional headquarters of multinationals and 17 research and development centers getting certified by the municipal government. The new deals cover key sectors, including biomedicine, electronic information, automotive, digital economy and green low-carbon, and 26 projects are valued at more than USD50 million each. Shanghai’s actual use of foreign direct investment exceeded USD24 billion in 2023, the fourth year in a row that it has surpassed the USD20 billion threshold, the China Daily adds.
