Recently, watch maker CITIZEN suddenly announced the closure of its Guangzhou company. Panasonic has also said that two color TV production lines will be withdrawn from China, and Microsoft has decided to gradually withdraw from two former Nokia mobile phone factories in China… Suddenly, there is all sorts of talk about large-scale flight of foreign capital from China. To make the situation worse, Qualcomm recently received a 6 million yuan fine from the National Development and Reform Commission.

Is foreign capital fleeing China?

Data is the best evidence. The Global Investment Trends Monitor Report newly issued by United Nations Conference on Trade and Development (UNCTAD) shows that in 2014, China attracted about 12.8 billion USD of FDI, 3 percent up from 2013, ranking No. 1 globally in foreign capital inflow for the first time. Considering that global FDI was down 8 percent from 2013, China is still proving very attractive to foreign capital.

In terms of the utilization of foreign capital, service industry is the most obvious growth point. Last year, foreign capital actually applied in the service industry was about 66.3 billion USD, a year on year growth of 7.8 percent, and representing 56 percent of China's total FDI, while FDI actually applied in traditional manufacturing industry in 2014 was about 40 billion USD, down 12.3 percent on a year-on-year basis.

Zhan Xiaoning, director of investment and enterprise department of UNCTAD pointed out that capital inflow to China is experiening a structural shift from manufacturing industry to service industry and from labor intensive industry to technology intensive industry.

The number of foreign funded companies also increased in 2014 - a total of 23,800 newly established companies, representing 4.4 percent growth year-on-year.

Mei Xinyu, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, said: "That foreign capital flows to services is inevitable against a background of China's economic restructuring and transnational corporations' adjustment of their global business." In recent years, China's service industry has maintained rapid growth. Meanwhile, with the development of China's own manufacturing industry, foreign funded manufacturing enterprises are gradually losing the upper hand, so it is inevitable that foreign capital will shift from low-end manufacturing industry to services or high-end manufacturing industry.

With China's economic restructuring, labor and production costs keep rising, and some foreign funded labor intensive manufacturing enterprises have moved their production bases to lower income countries. However, the flow of foreign capital to China's high-end manufacturing and high-tech industry is increasing. China is still a favored destination for foreign capital. 

The article is edited and translated from《中国开年未现外资撤离潮》, source: People's Daily Overseas Edition, author:Yin Xiaoyu.