Manufacturing sector attracts foreign investors

BEIJING: Those hurt by Covid-19 disruptions to economic activities may want to call 2022 annus horribilis, but for German company Freudenberg Group that operates in China, last year was a good period.

With a total investment of 520 million yuan (US$77mil or RM327.8mil), Freudenberg completed construction of its new manufacturing plant in July in Changchun, Jilin province, and kicked off operations in October.

The factory makes high-quality seals used in automotive and related industries.

Another factory in Chongqing providing high-end shock absorption, noise reduction products and solutions for passenger cars, including air springs, also became operational last year, and has delivered more than 60 titles of products and solutions to more than 20 clients.

Freudenberg Group shows why foreign investors find the attractiveness of China’s high-end manufacturing sector irresistible. Benefits to be reaped abound as China strives to transform and upgrade traditional industries while cultivating and spurring the growth of strategic emerging industries.

The Central Economic Work Conference in mid-December said China would accelerate the building of a modern industrial system.

Efforts will be made to identify the weak links in key and core technologies as well as components and parts in the country’s major manufacturing industrial chains, and pull together resources to tackle various problems so that the industrial system can become independent, controllable, safe and reliable, the meeting said.

It also said the country would make greater efforts to attract and utilise foreign capital.

Experts said China’s manufacturing sector is expected to become even more attractive to foreign investors, as stronger government efforts to boost foreign direct investment (FDI) in the sector are anticipated in the coming years.

“The manufacturing sector is a key economic pillar and a driver of economic growth. It’s also a key area for global competition. However, in recent years, the overall scale and growth of FDI inflows into China’s manufacturing have declined relative to the services sector, leading to a decline in the manufacturing sector’s share in overall FDI,” said Zhang Fei, associate director of the Institute of Foreign Investment, which is part of the Chinese Academy of International Trade and Economic Cooperation.

“That has prompted the authorities concerned to intensify efforts to boost and encourage FDI in manufacturing. They have introduced a series of new policy measures,” she said.

The country’s newest catalogue of industries for encouraging foreign investment has taken effect on Jan 1.

The catalogue continues to encourage foreign investment in manufacturing and enhance industrial and supply chains while also promoting the integration of the services and manufacturing sectors.

In October, China unveiled 15 new measures to promote foreign investment in manufacturing. These included promotion of signing and implementation of foreign investment projects and encouragement to foreign investment in areas like high-end equipment and key components.

Several factors are helping China to attract FDI to its manufacturing sector, experts said.

Among them are the country’s complete industrial chain, stable supply chain, huge domestic market, improving business environment and, most importantly, a large population of skilled workers, engineers and researchers, Zhang said.

Zhang also said she expects the Chinese government to make more moves to increase FDI inflows and improve FDI structure in manufacturing.

Latest data from the Commerce Ministry showed FDI in actual use in the Chinese mainland rose by 6.3% in 2022.

The manufacturing sector received 323.7 billion yuan (RM203.17bil) in foreign investment that was actually used in 2022, up 46.1%.High-tech industries saw a 28.3% rise in FDI. Specifically, foreign investment in electronic and communication equipment manufacturing soared 56.8%, while that in the scientific and technological achievement transformation services segment jumped 35%.

According to the China FDI Report 2022, which was released by the Institute of International Economy under the University of International Business and Economics in December, China experienced a surge of more than 55% of FDI inflows from US$111.72bil (RM475.7bil) in 2012 to US$173.48bil (RM738.7bil) in 2021.

Meanwhile, the FDI structure had also got enhanced. The proportion of FDI in high-tech industries in the overall FDI was 30.2% in 2021, while in 2012, the corresponding figure was only 14.1%, according to the report.

The report also stated the FDI surge is a testimony to China’s expanding opening-up. China’s attractiveness to foreign investors has roots in the country’s unwavering opening-up, improving business environment and the extension of the opening-up policy to platforms like free trade zones that have taken a lead in FDI management innovations, it said.

According to Sang Baichuan, dean of the institute, China needs to further expand opening-up as the global economic and trade rules are being reconstructed, so that the country can keep up with high-standard international trade and economic rules and create facilitating institutional environment for attracting FDI. This will stabilise the manufacturing sector’s growth as well as China’s key role in the global manufacturing system.

“An efficient and facilitating institutional environment is indispensable for us to stabilise the development of the manufacturing sector, the FDI and the real economy, and it is also key to China cultivating new competitiveness,” he said.

The growth rates of FDI in high-tech manufacturing and service sectors are higher than the overall FDI growth pace. That reflects the ongoing transformation and upgrade of the Chinese economy, he said. — China Daily/ANN

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