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Reshoring to have 'limited' effect (2)

(China Daily)

08:13, September 07, 2012

"This will affect China's industrial upgrading and ongoing economic restructuring in addition to reducing FDI flowing into China.

"The reshoring of manufacturing has started to take effect, so the government must take immediate measures to optimize the business environment and reduce investment costs," Sang added.

In Asia, South Korea announced policies in April aimed at enticing more of its companies to come home and invest.

A group of 14 South Korean jewelry and accessory companies pulled out of Qingdao in East China in late August, for instance, the first time any companies from the country had jointly pulled out of investments in China.

The companies concerned blamed the worsening business environment in China, including rising costs and the appreciation of the yuan, as well as the favorable incentives being offered in South Korea, helped by free trade agreements which came into force with the US and EU in 2011, according to a report in Korea JoongAng Daily.

Wang Haifeng, director of international economics at the Institute for International Economic Research, which is affiliated with the National Development and Reform Commission, agreed with Shen, and said that he too considers any trend by foreign firms to return home as temporary.

Foreign direct investment into China declined 8.7 percent in July from a year earlier to $7.58 billion, the eighth drop in nine months and the smallest inflow since July 2010, according to the ministry.

But Shen emphasized that Chinese manufacturing attracted 45.2 percent of FDI in China from January to July, which is almost the same as previous years, showing that there has been no significant capital withdrawal from Chinese manufacturing at the time being.

"In the medium and long term, China still retains competitiveness in attracting FDI," Shen said.

"Despite rising operating costs, which are actually relatively low compared with other developed economies, China has a huge domestic market and a well-developed industrial structure as well as a labor supply which is rising in quality."

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