A heated argument begun in 2016 over foreign capital being withdrawn from China is still showing no signs of ceasing. Although they rely on massive labor resources, huge market potential and government subsidies, foreign enterprises investment in China are still enormous. However, in recent years, the growth rate of foreign investment in China is slowing. Once fairly rare, in 2016, there was yet another drop in the total foreign capital actually utilized in China (below in USD).
In January of this year, there was a 14.73% drop in foreign capital actually utilized in China. Authorities however believe that this monthly data is not representative of the long-term situation. But downsizing at Oracle, the shutting down of Seagate’s Suzhou factory and Marks and Spencers closing its doors, everytime foreign investors leave, it impacts employment for numerous people. According to estimates by the Chinese government, foreign invested enterprises directly employ over 45,000,000 Chinese citizens. Downsizing and loss of jobs due to retreat of foreign investment must be guarded against.
A Utopian Haze
There isn’t just one reason that foreign firms are leaving or finding themselves in predicaments. Carrefour and other foreign-owned retail entities like it continuously shutting their doors as Chinese e-commerce giants rise are two slopes of a distinctly negative correlation. The shape of Chinese retail is transforming and the “mall” model is withering away with Carrefour as a representative of those who are seeing their golden opportunity to cut and run.
Seagate’s shutting down of it’s Suzhou factory also provides food for thought due to the fact that before this they announced that they had invested 470,000,000 USD in Thailand to expand their hard drive business. McDonald’s stated they were selling Chinese stores to reorganize their strategy, but the drastic move also had to do with food safety, changing consumer opinions on fast food and increases in employee wages.
Whatever the reason, as foreign investment leaves, its not just taking capital with it, its also taking jobs. At the end of December, 2016, the Ministry of Commerce publication China Foreign Investment Report says that the estimated 45,000,000 people directly employed by foreign enterprises makes up over 10 percent of employment in towns and cities. Furthermore, foreign enterprises and investment indirectly create jobs in the manufacturing, service and other related sectors.
What Can be Done?
According to data from the National Bureau of Statistics of the People’s Republic of China (NBS), in 2016 fixed foreign investment in Chinese fixed assets was barely 121.197 billion in stark contrast to the 326.981 billion invested in 2011. A drop of 64.94% in just five years. Last year, Chinese direct investment overseas surpassed foreign direct investment (FDI) in China for the first time, reaching a historical high at 170.11 billion USD. On February 16th, it was announced that foreign direct investment was 12 billion US, a 14.73 percent decrease. A drop that likely means more jobs lost on the Mainland.
Not So Special After All
In the past, when manufacturing costs everywhere were inflating, China seemed to be immune and Chinese were on the rise. But as foreign investments pull out of China, there are a few new issues have come up:
One is that costs of doing busines in China are increasing and foreign investors are racing to cash out. The most recent example being Li Ka-shing getting his money out of Chinese real estate. The second thing is that labor costs in China are no longer as cheap as they used to be. Three is the devaluation of the Chinese yuan. Total profits for foreign investors are down. Four is that now that Trump is in power and has beneficial policies toward businesses in the U.S., some businesses are going back to the states. Unemployment is rising, and alarms are sounding for Chinese policy makers.
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Keywords: Foreign capital
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watch Donald Trump pick up the blame. We are going to find out the real economic numbers soon. Most economists figured the numbers coming out of China were skewed. The CPC's dream of reaching economic parity with the USA may never be realized. The wealthy are no longer allowed to freely move their money out of China. I wonder what the average working middle class person in China can do with their new found wealth?
Mar 04, 2017 11:19 Report Abuse
This is no surprise... it was inevitable. The government kept screwing over, scapegoating and creating so much additional taxes and red tape. What did they think was going to happen? They don't care. Their money is all invested in foreign countries or in a bank in Panama.
Mar 03, 2017 19:45 Report Abuse
So, now we're starting to get the data that we all knew was coming - foreign companies going elsewhere, because doing business in China has too many negatives. The balance of Chinese foreign policy vs low wages/expenses has now tipped. I'm sure the CCP will make this look like a good thing - the loss of millions of jobs... Just another sign that China is withdrawing from the world, rather than trying to be a part of it. The rich get richer, the poor get the picture.
Mar 03, 2017 13:13 Report Abuse