Why FDI growth momentum will be stable

Last year, something momentous happened but it probably went unnoticed as the world grappled with COVID-19. China surpassed the United States to become the biggest recipient of foreign direct investment－FDI－in 2020.

It's not difficult to figure out why. While certain countries raised the threshold for FDI as a requirement for access to their domestic markets, China instead created an improved business environment for foreign firms.

In addition to the country's super-large market, foreign companies' confidence in China is inseparable from its more market-oriented foreign investment environment for global companies, where the rule of law is stronger than ever before.

Even though many Asian countries such as India, Vietnam and Indonesia are stepping up their efforts to attract overseas investment, they have not gathered the same level of strength to attract FDI as China has.

You can't blame this on the impact caused by the COVID-19 pandemic alone. Such countries can't compete with China's systemic advantages, the country's sustainability of long-term policy, mature infrastructure, supply and industrial chains, and the new round of reform and opening-up.

To be sure, many countries are able to offer global investors favorable policies, backed by their fast growth pace of urbanization and industrialization, as well as infrastructure projects and the growing number of youngsters. But, what's more important is the soft power, the ability to constantly optimize the business environment and ensure policy continuity.

Judging from China's experience in attracting foreign investment, the country has been able to maintain a healthy momentum in attracting FDI for decades, with notable policy measures and laws, like the Foreign Investment Law that took effect last year, working measures on complaints by foreign-invested companies and the Foreign Investment Guide.

The country's business environment has reached a new height in recent years. The introduction of the negative list system, the signing of the Regional Comprehensive Economic Partnership agreement and the conclusion of talks on the Comprehensive Agreement on Investment with the European Union have all significantly boosted the business environment in China. Therefore, global businesses' confidence in investing in the country has been reinforced.

While expanding domestic demand and ensuring the smooth flow of the internal circulation－the domestic cycle of production, distribution and consumption－China's efforts also focused on boosting both exports and imports. This strategy will not only build a broader platform for global cooperation, but also encourage more foreign firms to invest in China.

Because it is impossible for any investor to turn a blind eye to the huge consumer market, it can be expected that in accordance with the requirements of the new dual-circulation development pattern, the Chinese market of the future will free up more investment and consumption spaces.

The layout and the influx of foreign capital in China indicate that multinational corporations have strong faith in China's new development pattern, new five-year plan and long-term goals.

That's why, it's neither exciting nor surprising that the Ministry of Commerce reported that China's actual use of FDI surged 31.5 percent on a yearly basis to 176.76 billion yuan ($27.1 billion) in the first two months of the year.

The increase in FDI in the first two months has been large, but it should not make anyone blindly optimistic or irrationally exuberant, because this has something to do with the overall drop in the performance of FDI due to the epidemic during the same period last year.

Make no mistake, China is still facing considerable pressure on how to attract more investment in the fields of high-end manufacturing and technology, and the next step to attract more foreign investment in certain areas will be challenging. However, on the whole, the growth momentum of FDI will likely be stable in China.