China’s services industry a new magnet for foreign investment

BEIJING: Foreign direct investment (FDI) into the Chinese mainland, in actual use, topped the 1-trillion-yuan ($156.85 billion) mark in the first 11 months of 2021, surpassing the whole-year FDI in 2020 and affirming China’s continued dominance as the top investment destination globally.

Notably, FDI into the services industry accounted for about 80 per cent of total investment in the first 11 months, maintaining robust growth momentum.

China has been accelerating the opening-up of its financial sector, removing foreign ownership caps on sectors like securities, fund management, futures, and life insurance companies in 2020, and further widening access to the services sector in pilot  free trade zones this week.

More foreign-funded companies have settled in China this year. So far, more than one-third of the nearly 1,700 licensed financial firms in Shanghai are foreign-invested, and the number continues to grow.

In 2005, services occupied just 24.7 per cent of China’s total FDI. That increased to over 50 per cent in 2011 and 77.7 per cent in 2020, making services the top choice for foreign investors.

The services industry becoming the mainstay in attracting foreign investment conforms to the characteristics of China’s current economic development, said Wang Xiaohong, deputy head of the information department of the China Center for International Economic Exchanges.

In 2015, the services industry for the first time occupied 50.5 per cent of China’s gross domestic product. Under the impact of the Covid-19, services contributed 54.2 per cent of China’s economic growth in the first three quarters of 2021, becoming a vital force to maintain the economy’s steady progress.

Although the expanding flow of foreign investment into the services sector is impressive, analysts say that the manufacturing sector, a traditional gold mine for overseas investors, is by no means shrinking.

It may seem as though foreign investment is flowing more into services and less into manufacturing, but foreign investors are placing more attention on research and development (R&D), said Fang Aiqing, deputy director of the economic committee of the Chinese People’s Political Consultative Conference National Committee.

In the first 11 months of 2021, the high-tech services sector saw its FDI inflow jump 20.8 per cent, covering manufacturing-related industries such as legal, consulting, human resources and intellectual property services.

US chemical giant Dow has established an innovation center in Shanghai, and it is the company’s largest R&D center outside the United States.

The company has signed a memorandum of understanding to build a new manufacturing hub in Zhanjiang, south China’s Guangdong Province, where it will initially invest 250 million US dollars.

“In the longer term, we foresee that the transformation of China into a low-carbon society will accelerate and provide Dow with opportunities to use our local capability and world-leading innovation to invest more,” said Jon Penrice, president of Dow Asia Pacific.

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