Foreign Companies Opting Out?

Competition to Shared Economy

Over the past 30 years of reform and opening-up, due to the development of China’s economy and changes in cost-effective factors, both foreign and domestic enterprises have transferred their investment areas, expanded their scales, and become more efficient.

“For example, labor-intensive enterprises in East China, including foreign-invested companies, have gradually shifted to China’s central and western regions, and even toward certain neighboring countries. This phenomenon highlights the decisive role the market plays in resource allocation,” China’s Minister of Commerce Gao Hucheng said. “We are now more concerned about the quality of foreign investment.”

Gao Hucheng quoted indicators that FDI in China has maintained a steady growth. In 2015, FDI stood at US $126.3 billion (excluding data on bank deposits, insurance and securities) – a 5.6 percent increase over the previous year. During the 12th Five-Year Plan period, FDI grew by 30 percent compared with that of the 11th Five-Year Plan period. Data for 2014 and 2015 show the highest level for two consecutive years.

“This fully demonstrates that China’s economic development and business environment act as magnets for foreign investment,” Gao Hucheng said.

Worthy of mention is that, in 2014, Chinese citizens and enterprises throughout the world made a total of 837,000 patent applications, compared to 500,000 by those from the U.S. and 465,000 by Japanese citizens and firms. As Chinese enterprises have strengthened their research and development capability, foreign companies can no longer obtain huge profits solely through a monopoly on technology. China’s indigenous manufacturer Gree Electric Appliances Inc. invested more than RMB 2 billion in research in 2009 – a figure that doubled last year. Gree’s focus on core technology innovation has won the company numerous national technology awards.

R&D facilities are also prominent in Siemens AG’s blueprint for China. The company’s Corporate Technology department (SLCCT) occupies a special position as the largest R&D base beyond Germany. By fiscal year 2015, the company had 20 R&D hubs, around 4,500 R&D researchers and engineers, and more than 10,000 active patents and patent applications in China

Chen Liming, president of IBM China, a representative transnational enterprise with more than 30 years of information and technology experience in China, pinpointed two phenomena: China’s investment in scientific research has dramatically expanded to become the global No. 2 since 2006 and is expected to rival that of the U.S. by 2020. China’s ratio of R&D investment to GDP moreover surpassed that of the European Union in 2014. Meanwhile, China is keen to make advanced high-tech achievements and be an incubator for global technology innovations.

Under the guidance of the five development concept of innovation, coordination, green, openness, and sharing during the 13th Five-Year Plan period, China will speed up its process of building a new open economic system. It will be one characterized by rule of law, and a society that welcomes foreign investment by building a more open, international, and convenient business environment.

“China’s business environment is sure to become more transparent, stable and favorable for all kinds of enterprises. I strongly believe that China will be the most popular destination for global investors,” Gao Hucheng said.

“Looking around the world, China is the second largest overseas market for Siemens AG, and will maintain its importance as a vital investment market,” Herrmann said. He added that the 13th Five-Year Plan inspires foreign businessmen. “We look forward to joining hands with China, now and in the future,” Herrrman concluded.