With foreign spectators being banned from the Beijing Winter Olympics this year due to the country’s zero Covid-19 policy, China’s engagement with the external world looks a far cry from the 2008 Summer Olympics and its popular song “Beijing Welcomes You”. 

The 14 years separating the two events span a pronounced shift in the way China engages with the world — and vice versa. 


For Ker Gibbs, former president of the American Chamber of Commerce (AmCham) in Shanghai, in the intervening years between the 2008 and 2022 Games, feelings of comfort have been replaced with words of caution.

From comfort to caution

“In 2008, there was a great deal of comfort and enthusiasm in the market, and with the meltdown of the global economy, China felt like a safe harbour,” he explains. “That has been very much replaced with caution, or worse.”

With continued geopolitical tensions, sanctions, Covid-19 restrictions, regulatory pressures and fallout of China’s disputed human rights track record, investors are “really uncomfortable with China right now and worried about getting caught in the middle”. 

“They may continue to invest and work with the country — the market opportunity is too attractive — but that doesn’t mean that they’re comfortable about it,” he continues.

External and internal headwinds have already kept investors at bay. Greenfield foreign direct investment (FDI) data capture this sentiment. The number of FDI projects announced by foreign investors fell to historic lows in 2020 and 2021, both in absolute and relative terms, fDi Markets figures show, thus accelerating a downward spiral that began in the mid-2015s. 


As the Chinese economy rebalances from an export-driven model to one of domestic demand, Chinese policy-makers have signalled their commitment to lure high-tech foreign companies and knowledge-based services firms willing to serve, and compete, in the domestic market through further liberalisation of FDI regulations. Yet if China’s export-driven manufacturing star is waning, the risks associated with doing business in China are holding back more sophisticated investors. 

While the country remains too big to snub, its future as a major investment destination, proportional to the size of its economy, is challenged, with only a select group of high-profile multinational companies ready to make billion-dollar splashes and flirt with Beijing along the way.

Greenfield slowdown

According to fDi Markets, the number of greenfield FDI projects into China hit an all-time low of 359 in 2020. While 2021 saw a slight jump up to 410, FDI activity as measured by the number of projects announced by foreign investors remained well below the average of around 1000 projects per year (951) recorded in the 2010s. 

The pandemic has thus accelerated the unfolding investment decoupling between China and the rest of the world. Manufacturers flooded China in the years following its accession to the World Trade Organisation (December 2001) and FDI remained on very high levels in the aftermath of the global financial crisis, when emerging markets were a hot commodity and events such as Beijing’s 2008 Olympics sharply raised China’s global profile. By the mid-2010s, however, the tide had already turned.  

Thilo Hanemann, partner at the research institute Rhodium Group, says that “there is definitely a visible and meaningful slowdown in new greenfield FDI projects” in China. 

“We are moving away from a broad and diversified FDI picture towards a more concentrated mix of just a handful of foreign multinationals that are driving the total investment value,” he says, noting that most of these companies are already heavily invested in the Chinese market and need to sustain their footprint to maintain their market share. 

While the pandemic knocked investment inflows across the world, China has taken a harder hit, which further weakened its status as a major global destination of foreign investment. Its share of global FDI projects has sunk by a factor of five over the past two decades, from roughly 15% in 2003 to 3.3% in 2021, behind the likes of Poland (3.4%) and India (3.4%), according to fDi Markets. In other words, while China used to attract one in six FDI projects announced globally in 2003, it now attracts just one in 33. 

But at the same time, official figures from China’s Ministry of Commerce (Mofcom) indicate that overall FDI — greenfield FDI plus, among others, mergers and acquisitions (M&A) and intracompany loans — rose to a record high of Rmb1.15tn ($181bn) in 2021. 

Mr Hanemann says that there is a “massive discrepancy” between the macro data, such as the balance of payment figures measured by the Chinese State Administration of Foreign Exchange (Safe) and utilised FDI measured by Mofcom, and micro transactional figures, such as fDi’s, but adds that this “gap has got larger” in recent years. 

He attributes the strong numbers illustrated by Safe and Mofcom to companies putting cash into China without committing to new projects, lured by favourable interest rate differentials and appreciation of the renminbi. 

Added to this is the inscrutable nature of Mofcom data. In 2021, some 71% of China’s inbound FDI figures come from Hong Kong, according to official figures. Hong Kong and China are considered separate entities by the World Trade Organisation (WTO).

While that Hong Kong inbound figure cannot be broken down any further, a Fitch report from November 2021 says that “a large portion of inflows from Hong Kong and Macau originated from Chinese companies”. This brings into question how “foreign” such direct investments are.

By contrast, in 2003, the share of Hong Kong FDI into China, according to Mofcom data, stood at roughly 30%. Mofcom could not be reached to comment further on this. 

M&A down

Despite the buoyant nature of China’s official data, other independent sources confirm the country’s falling share of global cross-border investment.  

Refinitiv’s data show that while cross-border inbound M&A into China may appear solid in absolute terms, with a slight increase in recent years, China’s relative global market share of cross-border inbound M&A has fallen from 4.7% in 2013 to 2.6% in 2021. Of an M&A market worth just under $600bn, FDI occupied less than 10% at a paltry $43bn in 2021, which is less than much smaller economies like Sweden, Refinitiv figures show. 

Cornelia Andersson, head of capital raising and investment banking at Refinitiv, says that when looking at the figures, “you have to remember that 2021 was a phenomenal year for M&A activities”, and therefore “against the global backdrop and the modest growth in Chinese M&A, we can see that China is lagging behind”. 

Ms Andersson expects that this trend of a declining share of China’s inbound cross-border M&A will continue, due to regulatory hurdles creating an “environment of uncertainty”.

“I don’t think there’s a particularly rosy outlook here,” she says. “We will continue to see China’s global share of cross-border inbound M&A eroded. That raises other questions: does that mean that China will be a closed off market? Potentially. I don’t see anything that indicates that we’re going to return to favourable conditions.”

Liberalisation efforts

These FDI figures suggest Beijing’s FDI liberalisation efforts have yet to strike a chord with foreign investors. But not everyone is writing off the Chinese market, not least in areas that Beijing deems favourable. 

Yi Zhang, general manager in China for advisory OCO Group, believes that certain sectors present clear opportunities to foreign investors, as more sectors are removed from the country’s Special Administrative Measures (Negative List) for Foreign Investment Access. Since 2018, this has determined FDI restrictions on specific sectors, although it has been pared down with every passing year.

Elsewhere, the Foreign Investment Law, which came into effect in 2020, overhauled the previous decades’ FDI regulations. It stipulated that foreign-invested enterprises would receive the same treatment as domestic companies unless their activities fell under one of the restricted sectors set out on the Negative List.

One recent amendment to the Negative List was the January 2022 removal of restrictions in the automotive sector, giving foreign car makers full foreign ownership of their Chinese operations.

Mr Zhang cites the examples of Tesla and Volkswagen as two foreign firms betting on the country’s electric vehicle revolution, refuting the notion that such players will be drowned out by domestic competition.

There is a parallel Negative List for free trade zones which, as of January 2022, contains no restrictions on manufacturing industries. 

Max Zenglein, chief economist at Mercator Institute for China Studies, expects China to roll out the red carpet for foreign investors in strategic sectors, such as high-tech manufacturing, where the Chinese government recognises the need for foreign expertise.

But he also comments on the different approaches taken by different source-country investors. For instance, he says, German companies are still moving in, whereas Japanese companies have shown a shift in mindset and will likely “be less susceptible to this red-carpet treatment”.

In terms of greenfield market share, fDi Markets shows that German and Japanese companies have traded places. In 2010, Japanese companies accounted for 14.7% of the greenfield FDI market in China, while German firms occupied roughly 8.6%; in 2021, German companies occupied 14.6% of the total, with the Japanese only holding 8.1%.

No longer the factory of the world

Across a broader range of sectors, manufacturers have been less bullish on doing foreign investment in China for years.

In numerical terms, FDI has fallen from 560 recorded new projects in 2008 to 274 in 2015, and further still to a mere 113 in 2021, fDi Markets figures show. In parallel, estimated capital expenditure has dropped from $55.5bn in 2008 to $28.2bn in 2015, and stood at $18.6bn in 2021.  

China’s status as a low-cost export manufacturing destination has been challenged by rising labour costs, US and EU tariffs and companies’ increased need to diversify their supply chains – the latter has been notably accelerated by the Covid-19 pandemic. 

James Metcalfe, founder of UK-based e-bike company Volt, remembers how “excited” he was when his company first started production in China a decade ago.

The British company was then hit by an EU anti-dumping duty on e-bikes in 2017, resulting in an import duty of roughly 80%, and quickly moved to reshore all of its production to Poland. However, Volt maintained offices, warehousing, storage and sourcing in China. 

The Chinese market is still an option, Mr Metcalfe says, but at present “it wouldn’t be my first choice”. “I think there’s a number of potential opportunities with China,” he says, adding though that with Covid-19 restrictions, “it is not the ideal time to go and set something up right now”. 

To leave or not to leave

Other companies signalled moving manufacturing production away from China pre-pandemic. fDi Markets has tracked 51 relocation projects from China since 2018, at the outset of the the US–China trade war.

US-based Hasbro, which relocated three China projects to India, Vietnam and Mexico, wrote in its 2019 annual report that its is continuing efforts to “diversify [its] global sourcing mix and decrease [its] dependence on Chinese manufacturing”.

Elsewhere, US-based GoPro, which shifted most of its US-bound camera production from China to Mexico, said in its 2020 annual report that it is looking to “mitigate risks of additional tariffs, duties or other restrictions on [its] products and may decide to transition more manufacturing outside of China”.

South Korea-based Samsung abandoned operations in Huizhou, Guangdong, in 2019 as it moved its last smartphone manufacturing facility out of China. US tech giant Apple, for whom China is one its biggest consumer markets, has also taken some of its production out of China. 

On the other hand, such an exodus is difficult, costly and perhaps counterproductive, as many suppliers are still in China.

Kamala Raman, vice president of supply chain research at advisory Gartner, suggests that companies have not shifted supply chains as much as they intended to over the past few years due to issues around cost, quality assurance and scale. 

“When companies moved to China decades ago, they couldn’t get the quality, but it was 30/40% cheaper and over time they thought they’d get there in terms of quality. Now, these companies can’t find the quality and scale in India, Mexico or Brazil — let alone Vietnam which is already oversubscribed — without tacking on additional costs,” she says.

“FDI will go down because investors are not throwing in a lot of new money, but that doesn’t mean that total investments in China will go down in any meaningful way.”

Cost of doing business 

In step with the changing shape of the Chinese economy, the government has put an emphasis on expanding the services sector. In 2020, it laid out its vision in the ‘Deepening the New Round of Service Industry Opening-up and Comprehensive Demonstration Zone Work Plan’, which relaxed restrictions in nine industries, most notably the financial services sector. 

Yet, several big-ticket investments notwithstanding, China’s liberalisation in selected services sectors is still met with more caution than comfort.

Beijing opened up the financial sector in 2019, removing foreign ownership limits of certain financial investment firms. Many of the Wall Street behemoths, from Goldman Sachs and JPMorgan Chase to Citigroup, have been moving in to set up banking and trading businesses.

But as approvals and permits roll in, there is the niggling fear that it could all be revoked at any moment. David Solomon, CEO of Goldman Sachs, was reported as saying in The New York Times last year that the US bank’s activities in China are “largely dictated by how the Chinese government allows us to operate”.

HSBC, which has one of the biggest presences in the country, has lost out on business with Chinese state-owned banks as a result of the UK-based lender falling out of favour with Beijing, a Reuters investigation revealed last year. 

In this context, there is growing alignment among investors and Beijing’s own policy ambitions. One recent big-ticket announcement from accountancy firm PwC in November 2021, worth roughly $1bn, seemingly embraced the Chinese government’s 14th Five-Year Plan economic vision.  

Raymund Chao, PwC Asia-Pacific and China chairman, said in a press release that “we will continue to support and contribute to China’s major national strategies to drive towards an enduring outcome of continued growth and development for its economy”. PwC declined to comment further on their investment.

Mr Gibbs commented on this trend, telling fDi: “You got a lot of people running around ‘trying to be more Catholic than the Pope’, and demonstrate their loyalty and alignment with the party.”

Conversely, the role of consumer sentiment and geopolitics has also become an important theme for foreign investors in China, pulled between ESG credentials and Chinese public opinion. In December, US-based Intel came under fire in China after it emerged that it sent a note to suppliers asking them not to use or source products from Xinjiang over claims of human rights abuses. 

Andrew McGinty, partner at law firm Hogan Lovells in Hong Kong, says that following rising labour costs and geopolitical tensions — along with the need to comply with US, UK, EU and UN sanctions — while also complying with the China’s anti-foreign sanctions law, “the cost of running a business in China is rising”. 

“There needs to be a compelling narrative and driver for setting up or establishing a presence in China rather than just maintaining ‘flags on maps’,” he says.

For many, that compelling narrative still stands: growing consumer demand, the government’s strategic needs in certain sectors and the size of the economy. Unlike the heyday of the 2000s, however, investment narratives have become personalised and more specific.  

Ahead of an important political year, where president Xi Jinping is expected to embark upon his third presidential term at Chinese Communist Party (CCP)’s 20th National Party Congress in late 2022, Mr Gibbs says “this is a country in transition, but it’s not clear what China 2.0 will look like”. 

Even if there are business opportunities in China, the practicalities of dealing with a zero-Covid China have unsettled investors and individuals. Mr Gibbs himself left his role as president of AmCham last year, citing the difficulties of living as an expat, with China’s zero-tolerance Covid-19 policy, and its associated travel restrictions, as one of the main reasons for leaving. 

Yet, despite having been compelled to leave China, his home of some 20 years, Mr Gibbs remains “bullish” on China and the market, and is happy to watch from afar — the only way most of people outside China can currently engage with the country, including its Winter Games.

This article first appeared in the February/March 2022 print edition of fDi Intelligence. View a digital edition of the magazine here