China’s president and general secretary of the Chinese Communist Party (CCP), Xi Jinping, has proved the most influential Chinese leader in four decades and has presided over some of the biggest economic shifts the country has seen since Deng Xiaoping’s reforms of the late 1970s.
This week, his position is likely to be consolidated further at the CCP’s 20th Party Congress, which began on Sunday October 16 and will last one week. The meeting brings together more than 2000 delegates representing China’s some 90 million party members and sets the tone for the next five years of communist party rule.
Since Xi Jinping came to power in China in 2012, he has waged a campaign against government corruption, boosted China’s influence overseas by launching the Belt and Road Initiative (BRI) and prioritised an economic shift towards domestic consumption over export-driven manufacturing.
China loses its place as prized FDI destination
In 2012, Xi inherited an economy that was still a must-have market for many foreign businesses. At the beginning of the 2010s, the estimated capital expenditure of greenfield foreign direct investment (FDI) into China hovered between $70bn and $80bn, according to fDi Markets — higher than any other country. As the decade went on, China’s top spot as an FDI destination fluctuated in a tussle for supremacy with the US.
Despite a high of $119.5bn in 2018, when multi-billion dollar investments from the likes of Exxon Mobil, BASF and Tesla went into the country, FDI into China has since fallen away — a trend only accelerated by the Covid-19 pandemic.
By 2020, there had been a significant slowdown and the FDI figure had dropped to $30bn — less than half what it had been when Mr Xi began his presidency — and to $29bn in 2021. During the first half of 2022, greenfield FDI into China fell to its lowest ever level on record.
Western retreat from China
Following 2018, when then US president Donald Trump started slapping tariffs on Chinese products, there was a significant drop off in investment into China from OECD countries.
At the same time, fDi Markets data illustrate that there has been a comparative increase in investment from OECD countries into Europe and the US over the past decade. In 2012, OECD investments into China stood at $55.9bn, while those into the US trailed behind at $48.7bn.
By 2015, the US had attracted more FDI from these countries than China, and it has attracted more OECD investment than China since 2018. In 2021, roughly $80bn worth of OECD FDI went into the US — four times more than that which went into China.
Jörg Wuttke, the president of the EU Chamber of Commerce in China, told fDi that the “allure of China” is waning, as foreign businesses consider their options for new investments.
Export-driven to domestic-led
Mr Xi’s China has also been one where the economy, whose initial growth had been determined by export growth, turned inward.
China’s exports of goods and services as a share of gross domestic product had been as high as 36% in the 2000s, according to World Bank and OECD data, but from 2012 onwards this has fallen consistently to around 20%.
Is FDI shifting to services?
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 and knowledge-based services firms into the domestic market through further liberalisation of FDI regulations.
Yet, several big-ticket investments notwithstanding, China’s liberalisation in selected services sectors is still met with comfort.
In 2012, manufacturing was the biggest recorded activity among investors in China, according to fDi Markets data. Fast-forward to 2021, and the number of manufacturing projects has dropped by 66%, while the number of projects in services (sales, marketing and support and business services) has fallen by 58%, meaning that FDI into services has done very little to pick up the slack left over by manufacturing.
The dragon comes of age
Waning greenfield investment into China has nonetheless coincided with more outbound investments since the BRI was adopted in 2013, which mobilised Chinese investments abroad.
In 2012, the level of inbound FDI into China was four times higher than the level of outbound FDI from China. Fast-forward to 2021, the balance is now tilted in favour of outbound FDI, which accounts for 53.4% of the country’s total foreign FDI flows, with the Asia-Pacific region absorbing half of Chinese overseas FDI.
Min Ye, associate professor of international relations at the Pardee School of Global Studies at Boston University, explained in a podcast interview last year that the initiative was born of domestic crisis, not a bid for control on the international stage.
Chinese loans in Africa
A key tenet of China’s newfound foreign policy has been its interests in Africa, where Chinese FDI had the biggest growth spurt in the early years of the BRI. Chinese FDI into Africa jumped from 6% in 2012 to 34% in 2016.
Besides FDI, Chinese debt financing in Africa has been considerable. Between 2012 and 2020, Chinese policy banks, China Development Bank, Export Import Bank of China and non-policy banks signed $118bn worth of loan commitments with African governments, according to data from Boston University Global Development Policy Center.
Between 2012 and 2020, Angola was the biggest recipient of Chinese loans on the continent at $31.8bn, followed by Ethiopia at $9.3bn and Zambia at $8.1bn.