Authors: Zhong Zhengsheng, Fan Chengkai (Zhong Zhengsheng is a director of the China Chief Economist Forum and the chief economist of Ping An Securities)
Key takeaways
This paper focuses on the important changes in China's foreign direct investment (FDI) in recent years, especially after the pandemic, from four perspectives: growth trends, funding sources, investment methods, and industry distribution.
Growth trend: the high level is falling. From January to May 2024, the cumulative year-on-year decline in China's FDI widened to 28.2%, an increase of 11.8% compared with the same period in 2019 due to a certain base. The SAFE also reflects the pressure of the decline in foreign investment in 2022-2023, which has eased since the fourth quarter of 2023. Compared with the world, the year-on-year decline in China's FDI in 2023 is higher than that of other developing economies, but the overall performance from 2020 to 2023 is still better than that of other developing economies and better than that of the world.
Source of funds: mainly offshore financial centers. Hong Kong, China accounts for more than 70% of China's FDI funds, and more than 80% of the "offshore financial centers". From 2020 to 2022, China's FDI increment will basically come from offshore financial centers, and the growth of other sources is still recovering. It is worth noting that FDI from offshore financial centres may include "round-trip investment". Referring to the available literature, we estimate that "return investment" will account for about 40% of China's FDI from 2020 to 2022, with an average of about US$60-70 billion per year, taking into account the increasing proportion of funds in offshore financial centers.
Investment Approach: Greenfield investment is recovering strongly. After the pandemic, global greenfield investment activities were once hindered, but they grew for three consecutive years from 2021 to 2023; In contrast, cross-border M&A activity was resilient in the early stages of the pandemic, but has since grown sluggishly, declining for two consecutive years from 2022 to 2023. There are a number of clues behind the weakening and then recovery of global greenfield investment, including the impact of the pandemic, the decline and recovery of manufacturing investment, and the impact of global tax reform. From 2020 to 2023, the downward pressure on China's greenfield investment is higher than that of the world, but the pressure will ease in 2023. From 2020 to 2023, the amount of FDI in China's cross-border M&A has increased rapidly, but the number of projects has decreased significantly. This may reflect an increase in the concentration of active foreign investors and a decrease in the absolute number. It is worth noting that in recent years, the sum of China's greenfield investment and cross-border M&A according to UNCATAD statistics is far lower than the total FDI flow level.
Industry distribution: the proportion of services and high-tech continues to rise. Since 2023, the year-on-year decline in FDI in China's manufacturing industry has been smaller than that of the service sector, with the high-tech industry being the main driver. In recent years, the focus of foreign investment has shifted from manufacturing and real estate to services and high-tech industries. The proportion of FDI in the service industry and high-tech industries has increased steadily, of which the total proportion of FDI in six industries, including transportation, finance, wholesale and retail, TMT, scientific research, and business services, has gradually increased from less than 20% before 2010 to 58-60% in 2020-2022. In this process, the growth of FDI in the service sector completely offset the decline in FDI in the manufacturing sector, so that FDI generally maintained growth. This change is due to changes in the domestic industrial structure, increased openness to the service sector, and increased concerns of foreign investors about investing in overseas manufacturing. The layout of foreign investment has shifted from serving the "external circulation" to participating in China's "internal circulation".
Risk warning: some FDI data have not been published; The caliber of FDI data varies from institution to institution; "Round-trip investment" estimates may be biased; There are other factors influencing FDI trends in China and around the world.
This paper focuses on the important changes in China's foreign direct investment (FDI) in recent years, especially after the pandemic, from four perspectives: growth trends, funding sources, investment methods, and industry distribution. In terms of growth trend, China's FDI has changed from a steady and small growth before the epidemic to a large inflow after the epidemic, and is currently in the process of falling from a high level, and the growth rate is facing certain pressure. In terms of funding sources, the proportion of funds in "offshore financial centers" represented by Hong Kong, China has further increased, and the phenomenon of "return investment" related to it has attracted more attention. In terms of investment methods, China's greenfield investment is significantly under pressure compared with cross-border M&A channels, and the change in global investment patterns provides some clues, and the increase in foreign investment concentration reflected by this is also worthy of attention. In terms of industry distribution, although the manufacturing FDI has recovered in the past two years, the proportion of the service industry and high-tech industries has maintained a trend of increasing over the years, which is related to the changes in China's industrial structure, the degree of policy openness, and the trend of "de-globalization" in the manufacturing industry. 01
Growth trend: falling from a high level From January to May 2024, the year-on-year decline in China's FDI expanded, affected by a certain base. According to data from the Ministry of Commerce, from January to May 2024, the actual amount of foreign direct investment (FDI) in mainland China recorded a total of 412.51 billion yuan, a year-on-year decrease of 28.2%. The year-on-year decline reflects a certain base reason, and FDI from January to May last year recorded a total of 574.81 billion yuan, the highest level in history. From January to May this year, the cumulative value of FDI still increased by 11.8% compared with the same period in 2019. In May this year, FDI recorded 52.31 billion yuan, a new low since July 2018, a year-on-year decrease of 30.6%, but the decline was narrower than that in March and April. It is noted that after August 2023, the Ministry of Commerce will no longer publish monthly data on the US dollar denominated FDI prices. Based on the monthly average exchange rate of the US dollar against the RMB, we estimate that FDI in May this year was about US$7.36 billion, down 31.7% year-on-year, and the widening decline mainly reflected the impact of the appreciation of the US dollar.
The SAFE also reflects the pressure of declining foreign investment in 2022-2023, although the pressure has eased since the fourth quarter of 2023. Due to the differences in data caliber, statistical period, data processing methods, etc., there are certain deviations in the FDI data of the State Administration of Foreign Exchange and the Ministry of Commerce, but they show a similar trend. According to the financial account data compiled by the State Administration of Foreign Exchange from the perspective of the balance of payments, direct investment under China's financial account remained at a high level from the second half of 2020 to the first quarter of 2022, but it basically fell to zero in the second quarter of 2022, and began to turn negative in the third quarter of 2022 and continued to last until the fourth quarter of 2023, with negative growth for six consecutive quarters, and the downward pressure on direct investment may be higher than that in 2015-2016. Among them, the net amount of "direct investment liabilities or credits" turned negative in the third quarter of 2023, which was the first negative value since the statistics began, and once attracted much attention; However, the indicator returned to positive values in the fourth quarter of 2023 and the first quarter of 2024.
Looking at the trend in recent years, China's total FDI has increased significantly since the new crown epidemic. According to data from the Ministry of Commerce, from 2013 to 2019, China's FDI maintained a steady and slight growth, with an average annual growth rate of about 3%. After the new crown epidemic, China's FDI has increased significantly. From 2020 to 2022, China's FDI recorded US$1443.7, US$173.48 and US$189.13 billion, respectively, a year-on-year increase of 4.5%, 20.2% and 9.0%, respectively, a record high for three consecutive years, and a three-year average of 22.3% higher than that in 2019.
Compared with the world, the year-on-year decline in China's FDI in 2023 is higher than that of other developing economies, but the overall performance from 2020 to 2023 is still better than that of other developing economies and better than that of the world. In 2020, the outbreak of the global new crown epidemic hindered foreign investment activities to a large extent, and the global FDI flow shrank sharply. According to the United Nations Conference on Trade and Development (UNCATAD), China's FDI flows increased by 6% year-on-year in 2020, while global FDI flows shrank by 35% during the same period. In 2021-2022, as the economy of most parts of the world gradually unblocked, foreign investment showed a restorative growth. In the process, FDI growth in developing economies has been significantly better than that in advanced economies. In 2023, the global FDI performance will further move towards "normalization", with the restorative growth of developing economies in the early stage fading, while advanced economies will outperform developing economies, and FDI in most economies will shrink year-on-year. However, from 2020 to 2023, the average annual level of global FDI decreased by 23% compared with 2019, with advanced economies falling sharply by 52% and developing economies growing by 18% against the trend. Chinese mainland and Hong Kong grew by 21 percent and 69 percent, respectively, while other developing economies excluding them grew by 10 percent.
02
Source of funds: Offshore financial centers are the main sources of FDI funds in China, with Hong Kong, China accounting for more than 70%, and "offshore financial centers" accounting for more than 80%. According to the Ministry of Commerce, as of 2022, China's FDI funding sources mainly came from Hong Kong (73%), Singapore (6%), the Virgin Islands (4%), South Korea (3%) and Japan (2%). From 2014 to 2022, an average of 70% of Chinese mainland's total FDI (fluctuating range of 65-76%) came from Hong Kong, China, and from 2020 to 2022, Hong Kong, China's capital accounted for 73%, 76% and 73% respectively, higher than the pre-pandemic level. From 2014 to 2022, Chinese mainland's FDI funds came directly from the six "offshore financial centers" (Hong Kong, Singapore, the Virgin Islands, Cayman Islands, Macau and Bermuda) accounted for an average of 83%, and from 2020 to 2022, this figure reached 86%, 88% and 84% respectively, which is also higher than the pre-pandemic level.
From 2020 to 2022, China's FDI increment will basically come from offshore financial centers, and the growth of other sources is still recovering. In 2021, FDI from Hong Kong reached US$131.8 billion, an increase of US$26 billion (up 25%) year-on-year, while total FDI in Chinese mainland increased by US$29.1 billion (up 20%) during the same period. From 2020 to 2022, China's total FDI averaged US$169 billion per year, an increase of US$30.9 billion (an increase of 22%) from 2019, of which the annual average of funds from Hong Kong, China was US$124.9 billion, an increase of US$28.6 billion (an increase of 30%) from 2019, and the annual average of funds from the six major offshore financial centers, including Hong Kong, China, was US$144.9 billion, an increase of US$31.2 billion (an increase of 27%) from 2019. Excluding offshore financial centers, the average annual fund is only US$24.1 billion, a slight decrease of US$0.4 billion (-2%) from 2019. Looking at 2022 alone, the year-on-year growth rate of funds from Hong Kong, China and the six major offshore financial centers has dropped to 4%, while the funds from non-offshore financial centers have increased by 43% year-on-year, which is in a recovery trend.
It is worth noting that FDI from offshore financial centres may include "round-trip investment". Globally, it is not uncommon for FDI funds to flow into countries through "offshore financial centers". It is generally believed that these offshore financial centers act as a bridge in global FDI with lower tax rates and financing costs, and the actual source of funds and investment places are often countries or regions with physical operations. If the ultimate source of FDI flowing into China is overseas economies such as Europe, the United States, Japan and South Korea, and it only flows into the mainland through "offshore financial centers", then this part of the funds still has "gold content". However, FDI from "offshore financial centers" may come in part from "return investment" in Chinese mainland. According to the State Administration of Foreign Exchange, "round-trip investment" refers to "direct investment activities carried out by domestic residents directly or indirectly through special purpose vehicles (SPEs), i.e., the establishment of foreign-invested enterprises or projects in China through new establishment, mergers and acquisitions, etc., and the acquisition of ownership, control, operation and management rights and other rights and interests". Under this form of investment, the funds will flow out of Chinese mainland in the form of OFDI (Outward Foreign Direct Investment) and then flow back to Chinese mainland in the form of IFDI (Foreign Direct Investment), which will then be counted as part of FDI.
The main purpose of Chinese mainland enterprises to "return investment" with the help of offshore financial centers is twofold: First, tax avoidance. Some Chinese mainland enterprises reduce their tax burdens and transfer profits through offshore financial centers, and then return to Chinese mainland in the form of IFDI, which can enjoy the mainland's preferential treatment of "foreign capital". For example, the preferential tax rate between Chinese mainland and Hong Kong is 5%, which is lower than the 10% tax rate of Chinese mainland for other regions[1]. The second is capital appreciation. Chinese mainland enterprises setting up special purpose vehicles in offshore financial centers enjoy the added bonus of facilitating overseas listing. According to the data, since 2008, the amount of FDI from Hong Kong, China, has basically kept pace with the total market value of Chinese enterprises listed on the main board of Hong Kong. A Hong Kong-listed subsidiary may transfer the proceeds back to the parent company in the form of IFDI to achieve "capital appreciation". At present, China's overseas listed return investment is mainly private enterprises in the Internet industry, and is usually carried out through the establishment of a Variable Interest Entities (VIE) structure.
We estimate that "return investment" accounted for about 40% of China's FDI in 2020-2022, with an average of about US$60 billion to 70 billion per year. There is a lack of statistics on the "final source" of FDI in China's official data, and the volume estimation of "return investment" is mainly based on academic research. Xiao Lisheng et al. (2022) pointed out [2] that as of 2018, the scale of "return investment" in Chinese mainland's FDI stock was about 1 trillion US dollars, accounting for 37%, of which 21% was contributed by return investment for tax avoidance purposes, and 16% was contributed by capital appreciation achieved by overseas listed enterprises through VIE structure. Referring to the above proportions, we use two methods to estimate the scale of "return investment": method 1 (fixed ratio), assuming that 37% of China's FDI from 2020 to 2022 is return investment, the average annual investment is US$62.5 billion, and the annual average annual "actual investment" after excluding return investment is US$106.5 billion; Method 2 (Floating Ratio) assumes that the proportion of "round-trip investment" remains fixed in the funds from the six offshore financial centers, that is, "round-trip investment" accounts for about 46% of the funds in offshore financial centers. Due to the increase in the proportion of funding sources in offshore financial centers, the proportion of "return investment" in all FDI will increase to about 40% from 2020 to 2022, with an average of about US$67 billion per year, and the average annual "real investment" after excluding return investment is about US$102 billion.
03
Investment methods: Greenfield investment has been hindered for a time after the strong recovery of the new crown epidemic, but it has grown for three consecutive years from 2021 to 2023; In contrast, cross-border M&A activity was resilient in the early stages of the pandemic, but has since grown sluggishly, declining for two consecutive years from 2022 to 2023. There are two main types of FDI entry: Greenfield Investments, which refers to the establishment of a new subsidiary from scratch, and Cross-border Mergers and Acquisitions (M&A), which refers to the purchase of part or all of the equity of an existing company. In addition, it may also include other forms such as international financing by multinational corporations, reinvestment of profits, etc. UNCATAD provides breakdown data on greenfield investment and cross-border M&A in different regions of the world. From 2020 to 2022, global greenfield investment activities were under pressure, with the average amount and number of projects falling by 6% and 22% respectively compared with 2019. Cross-border M&A activity remained resilient, with average value and number of cases increasing by 9% and 6%, respectively, compared to 2019. In 2023, global greenfield investment will grow further, with the value and number of projects increasing by 5% and 2% year-on-year, respectively. Cross-border mergers and acquisitions declined significantly, with the value and number of cases falling by 46% and 13% year-on-year, respectively.
After the impact of the epidemic in 2020, there are many clues behind the first weakening of global greenfield investment and then recovery. First of all, greenfield investment has been hit hard by the epidemic. This is mainly due to the fact that new investment projects are often complex, often require site visits, and involve cross-border movement of people and equipment. Second, before the pandemic, global greenfield investment activity was already on a downward trend. As early as 2017, UNCTAD's Global Investment Trends Monitor reported that greenfield investment increased by only 5% in 2016, and the increase was mainly due to a few megaprojects in a few countries, and the decline in greenfield investment FDI inflows in most countries may reflect a lack of investor confidence in industry and global value chains. In addition, the performance of manufacturing investment has a large impact on the performance of greenfield investment. According to UNCTAD data, from 2020 to 2023, the manufacturing industry accounted for an average of 42% of greenfield investment, while the manufacturing industry accounted for only 28% of cross-border mergers and acquisitions. In absolute terms, since 2017, the amount of greenfield investment in the manufacturing industry has continued to be higher than that of cross-border mergers and acquisitions, and the gap will widen year by year from 2021 to 2023. From 2019 to 2022, global manufacturing investment tended to decline, with total manufacturing FDI shrinking by an average of 4% per year through the above two approaches, although this figure will increase sharply by 27% year-on-year in 2023. The global manufacturing FDI has shrunk for a while, which may not only reflect the decline in investment attractiveness of developing economies, but also be related to the increased trade and investment restrictions of developed economies and the promotion of "manufacturing reshoring". The recovery of global manufacturing investment may be related to the global active promotion of the reshaping of the industrial chain and the implementation of the "re-industrialization" strategy. Finally, global tax reforms are likely to affect the willingness to invest in greenfield. In recent years, the issue of base erosion and profit shifting in cross-border investment has continued to attract global attention. Since 2020, the "Global Minimum Tax Rate" program has accelerated. The imminent implementation of global tax reform has created an expectation of rising cross-border investment costs, further limiting the willingness to invest in greenfield after 2020.
From 2020 to 2023, the downward pressure on China's greenfield investment is higher than that of the world, but the pressure will ease in 2023. According to UNCATAD data, from 2020 to 2023, China's greenfield investment will average US$33.4 billion per year, down 38% from 2019. The number of greenfield investment projects averaged 455 each year, a decrease of 47% from 2019. In contrast, the average annual greenfield investment in global, developing and developed economies increased by 15%, 3% and 28% respectively compared with 2019, while the number of projects decreased by 17%, 19% and 16% respectively. However, in 2023, China's greenfield investment will recover, with the value and number of projects increasing by 72% and 22% year-on-year, respectively, significantly outperforming the world. In contrast, in 2023, the average annual greenfield investment in global, developing and developed economies will increase by 5%, 20% and 8% year-on-year, respectively. The number of projects increased by 2%, 15% and 6% respectively year-on-year.
From 2020 to 2023, the amount of FDI in China's cross-border M&A will grow rapidly, but the number of projects will decrease significantly. According to UNCATAD data, from 2020 to 2023, the amount of FDI flowing into China through cross-border mergers and acquisitions has fluctuated greatly, which is reflected in a significant increase in 2020, 2022 and 2023, with the absolute level being the highest since 2014, and the absolute level falling significantly in 2021 and hitting a new low since 2001. Based on the four-year performance, the amount of FDI in China's cross-border M&A from 2020 to 2023 increased by 54% compared with 2019, better than the global average of 13%. However, during the same period, the number of cross-border M&A projects in which China was the seller declined for four consecutive years, with an annual average of only 62.5, a significant decrease of 46% from 2019. In contrast, the average number of global cross-border mergers and acquisitions increased by 3% compared with 2019 during the same period. The decrease in the number of cross-border M&A projects in China may reflect the increase in the concentration of active foreign investors and the decrease in the absolute number.
It is worth noting that in recent years, the sum of China's greenfield investment and cross-border M&A according to UNCATAD statistics is far lower than the total FDI flow level. The total FDI flow data since 2008 compiled by UNCATAD is based on the data of the Ministry of Commerce in 2008 and estimated by the cumulative flow, which is not much different from the "actual amount of foreign direct investment" published by the Ministry of Commerce. However, adding up the "greenfield investment" and "cross-border M&A (seller)" in Chinese mainland under the UNCATAD caliber and comparing it with the "FDI flow" published by the former shows that the former has been significantly lower than the latter since 2015, and the gap between the two has further widened from 2020 to 2023, with an average difference of 2.7 times. In contrast, the total value of greenfield investment and cross-border M&A in regions other than Chinese mainland is relatively similar to the total reported FDI flow. The difference between the FDI flow of the mainland and the scale of the two investment methods may reflect changes in other forms of investment such as international financing and profit reinvestment of multinational corporations.
04
Industry distribution: the proportion of services and high-tech continues to rise Since 2023, the year-on-year decline in China's manufacturing FDI has been smaller than that of the service industry, and the high-tech industry is the main driver. According to the data of the Ministry of Commerce, in 2023, China's manufacturing FDI will record 317.92 billion yuan, a year-on-year decrease of 1.8%, accounting for 28.0% of FDI; Among them, the FDI of high-tech manufacturing increased by 6.5%, and the manufacturing of medical instruments and instrumentation, and the manufacturing of electronic and communication equipment increased by 32.1% and 12.2% respectively. In 2023, FDI in the service sector will record 776.08 billion yuan, down 13.4% year-on-year, accounting for 68.4% of FDI. In 2023, the total FDI of high-tech industries (including high-tech manufacturing and high-tech services) will be 423.34 billion yuan, accounting for 37.3% of FDI, an increase of 1.2 percentage points over the whole year of 2022 and a record high. From January to May this year, China's manufacturing FDI recorded a total of 117.11 billion yuan, accounting for 28.4% of FDI, of which 50.41 billion yuan was in high-tech manufacturing, accounting for 12.2% of FDI, and the proportion of manufacturing and high-tech manufacturing in FDI increased by 2.8 and 2.7 percentage points respectively over the same period last year.
Judging from the trend in recent years, the focus of foreign investment has shifted from manufacturing and real estate to service and high-tech industries as a whole. According to the Ministry of Commerce, China's FDI used to flow mainly to manufacturing and real estate, with manufacturing FDI peaking at US$52.1 billion in 2011 and real estate FDI peaking at US$34.6 billion in 2014, but both sectors fell to 68% of their historical peaks in 2019. From 2020 to 2022, the annual average of real estate FDI further decreased to 56% of the peak, and the annual average of manufacturing FDI recovered to 73% of the peak. The combined proportion of manufacturing and real estate FDI has gradually dropped from more than 70% before 2010 to 33-36% in 2020-2022. At the same time, the proportion of FDI in the service industry and high-tech industries has increased steadily, of which the total proportion of FDI in six industries, including transportation, finance, wholesale and retail, TMT, scientific research, and business services, has gradually increased from less than 20% before 2010 to 58-60% in 2020-2022. It can be seen that the growth of FDI in the service industry has completely offset the decline in FDI in the manufacturing industry, so that the FDI of the mainland has maintained growth overall. From 2020 to 2022, the combined annual average of FDI in real estate and manufacturing fell by 2%, while the combined annual average of FDI in the above-mentioned services and high-tech industries increased by 46% compared with 2019, making the total FDI increase by 22% over the same period.
How to understand the shift of the focus of the FDI industry from manufacturing to service? First of all, the distribution of FDI industry objectively conforms to the changes in the domestic industrial structure. From the perspective of rationality, the decline of manufacturing FDI is basically consistent with the change of domestic industrial structure, which is actually the result of the upgrading of the manufacturing industry and the servitization of the manufacturing industry. From 2004 to 2011, the proportion of added value of China's manufacturing industry in GDP entered a plateau, and from 2011 to 2020, the proportion showed a continuous downward trend. With the adjustment of China's industrial structure, the growth rate of FDI investment in the manufacturing sector has also declined accordingly. In 2011, manufacturing FDI peaked at US$52.1 billion and accounted for 45% of total FDI, and has been on a downward trend ever since. From 2011 to 2021, the proportion of China's manufacturing added value in GDP decreased by 4.5 percentage points to 27.5%, and the proportion of manufacturing in FDI decreased by 25.5 percentage points to 19.4%; From 2022 to 2023, the proportion of manufacturing in GDP will fall after a brief increase in 2021, and the proportion of manufacturing in FDI will rebound to a certain extent, but the two are still at a historically low level.
Second, the accelerated inflow of FDI into the service sector benefited from the improvement of the mainland's openness. Since 2017, China has continued to expand the degree of opening up of the service sector, and the foreign investment restriction index of the service industry has begun to decline in an orderly manner. According to OECD statistics, the FDI Regulatory Restrictiveness Index of China's service industry (tertiary industry) only decreased from 0.506 to 0.421 in 2011-2016, but decreased significantly in 2017-2020 and fell to 0.254 in 2020. Among them, the financial services, transportation, and wholesale and retail sub-indices decreased by 0.513, 0.162 and 0.048 respectively from 2017 to 2020, with the most obvious declines.
In addition, in the context of the restructuring of the global industrial chain, foreign investors are increasingly concerned about investing in overseas manufacturing industries. On the one hand, with the continuous development of China's economy and the slowdown of population growth, the comparative advantage of labor costs is gradually lost. In addition, the in-depth application of new information technologies such as industrial robots and industrial Internet greatly reduces the comparative advantage of labor costs, and on the contrary, proximity to the terminal market will become an important consideration for multinational companies. On the other hand, in the context of "de-globalization", the willingness of developed economies to return to manufacturing has increased. Since the Sino-US trade friction in 2018, in the context of the weakening global economy and the sharp decline in the scale of cross-border direct investment, the growth rate of FDI investment in China's manufacturing industry and the proportion of manufacturing industry have also dropped significantly since 2019.
It is also worth noting that the layout of foreign investment has shifted from serving the "external circulation" to participating in China's "internal circulation". Xu Qiyuan (2022) pointed out [3] that from the perspective of spatial layout, the strategy of foreign-funded enterprises in China has shifted from "in China for world" to more "in China for China", and more and more foreign-funded enterprises take China's domestic market business as the main axis. On the one hand, the participation of foreign enterprises in China's domestic market has been deepening. According to Xu Qiyuan (2022), in 2006, the export goods sales of foreign-funded enterprises reached US$563.8 billion, which is seven times their domestic sales in China. Since then, the gap between export and domestic sales has been narrowing, and by 2016, the domestic sales of foreign-funded enterprises reached 926.7 billion US dollars, exceeding the export value for the first time. In 2020, the domestic sales of foreign-funded enterprises have reached 1.45 trillion US dollars, which is 1.5 times the value of exports. On the other hand, the proportion of export activities involving foreign-funded enterprises has been decreasing. We estimate that in 2008, foreign companies accounted for nearly 60% of China's total exports, but by the end of 2022 the proportion had dropped to 32%. At the same time, the ratio of the import and export value of foreign-funded enterprises to the total FDI in 2022 also fell to a record low.
Risk Warning: 1) Some FDI data have not been published, and there may be deviations from the actual estimates, such as the estimation of RMB and US dollar-denominated data under the Ministry of Commerce; 2) The data caliber of FDI varies from institution to institution, for example, there may be a deviation between the data caliber of the Ministry of Commerce and the United Nations; 3) The estimate of "return investment" may be biased, due to the lack of the latest data, this article only estimates the proportion as of 2018. 4) There are other factors affecting the trend of FDI data in China and the world, such as statistical problems in various countries, medium and micro factors at the industry and enterprise level, etc.
Sources:
[1] Zhikuo Liu, Zhao Chen, Huihang Wu, and Yao Zhang, 2019, "Base Erosion and Profit Shifting of Chinese Enterprises: China's Experience under the Reconstruction of the International Tax Governance System", Economic Research Journal, No. 2
[2] Xiao Lisheng, Xu Zitong and Fan Xiaoyun, 2022: "Estimating IFDI and OFDI in China: Evidence from "Tax Havens" and Round-trip Investment", Journal of Financial Research, 2
[3] Xu Qiyuan, 2022: "Three Important Changes in the Strategy of Foreign Enterprises in China", Finance 40 Forum, 2022-01-15