China used to be the world’s factory.
It overtook the United States in 2011 as the biggest producer of manufactured goods.
Factories were an “engine” that raised Chinese living standards by doubling per capita GDP in the 10 years ending in 2013, according to a McKinsey & Co. report.
That shift took the United Kingdom 150 years, McKinsey notes.
But around 2011 China began to lean more on domestic consumption and domestic direct investment in clean, service-linked sectors, all part of an economically and environmentally sustainable rethink to growing what’s now an $11 billion-plus economy.
Now China is trying to revive its status as the best place to to invest.
Now China is trying to revive its status as the best place to to invest.
That move poses a challenge to Vietnam, China’s main Asian rival for export manufacturing.
In this photo taken on February 6, 2017, employees work on the Honda Civic production line at the automaker's Dongfeng Honda factory in Wuhan, China's Hubei Province.
In this photo taken on February 6, 2017, employees work on the Honda Civic production line at the automaker's Dongfeng Honda factory in Wuhan, China's Hubei Province.
Foreign direct investment in China will increase 15% this year, up from 4.1% last year, government think tank China Center for International Economic Exchanges said as reported by the official, English-language China Daily website on Wednesday.
Policies that open new sectors to foreign capital and fast-track applications from overseas will help raise that total, the think tank says.
China Daily also cites advances in “new materials” and “new technologies” as drivers of more investment, though it doesn't give specifics.
This forecast comes from just one think tank, but its state backing and release in a news outlet aimed at foreigners tells you it’s supposed to be policy.
China needs the boost to offset outflows of capital, much of it removed by Chinese firms that find the home market too competitive or restrictive.
China needs the boost to offset outflows of capital, much of it removed by Chinese firms that find the home market too competitive or restrictive.
Outflows hurt currency rates.
The country's outflows reached about $1 trillion in 2015 and estimates for 2016 aren’t far from that.
“FDI inflows net of FDI outflows have been negative for the past two years,” says Marie Diron, associate managing director with Moody’s sovereign ratings in Singapore.
“This net outflow is a drag on foreign exchange reserves. Although scrutiny on capital including direct investment outflows has increased, we do not expect this situation to change.”
Foreign investment in China reached $118 billion last year, China Daily says, less than 2% of the Chinese GDP.
Foreign investment in China reached $118 billion last year, China Daily says, less than 2% of the Chinese GDP.
By that measure, foreign direct investment in Vietnam last year led China, India and Indonesia at 6% of GDP, reflecting the country’s aggressive pursuit of factories run by obscure furniture makers all the way to Foxconn Technology Group and Samsung Electronics.
Vietnam’s boom in factory exports has fostered support industries, created jobs and raised living standards on the back of economic growth at near 6% per year.
There was never really a direct contest.
There was never really a direct contest.
China had drawn foreign investors for decades for its range of talent, relatively cheap land (until recently) and ginormous, increasingly well-off consumer market.
Vietnam was picking up mostly low-end stuff such as garments and car parts while China got value-added investors such as the PC makers.
Vietnam has swung toward electronics over the past five years.
But more foreign companies are wondering how welcome they are with China’s official shift to promoting domestic investment, says Scott Kennedy, director of the Project on Chinese Business and Political Economy at American think tank Center for Strategic and International Studies. “Surveys by the American Chamber of Commerce, the EU China Chamber and others all show that MNCs feel less welcome than in the past, and a portion of them have or are planning to move some of their investments out of China as a result,” he says.
Vietnam, which began gearing up as an export center in the 1980s, had come along as a place you could move that investment.
China’s re-launch as a world factory could also make Vietnam more viable as a place for expanding investments, suggests Oscar Mussons, international business advisory associate with the Dezan Shira & Associates consultancy in Ho Chi Minh City.
But more foreign companies are wondering how welcome they are with China’s official shift to promoting domestic investment, says Scott Kennedy, director of the Project on Chinese Business and Political Economy at American think tank Center for Strategic and International Studies. “Surveys by the American Chamber of Commerce, the EU China Chamber and others all show that MNCs feel less welcome than in the past, and a portion of them have or are planning to move some of their investments out of China as a result,” he says.
Vietnam, which began gearing up as an export center in the 1980s, had come along as a place you could move that investment.
China’s re-launch as a world factory could also make Vietnam more viable as a place for expanding investments, suggests Oscar Mussons, international business advisory associate with the Dezan Shira & Associates consultancy in Ho Chi Minh City.
“The type of manufacturing industries that draw foreign investors to Vietnam service a lower position on the production value chain,” he says.
“Taking this into consideration, Vietnam still has loads of room to grow.”
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