An Analysis Of The Reasons For Foreign Investors' Withdrawal From China'S Footwear Market

It is reported that in the month after the boiling up of the factory in Suzhou, Adidas officially opened its new China headquarters in Shanghai, and plans to add 500 new stores by the end of 2012.

Herbert Heiner, chief executive of Adidas, believes that China is the key driving force for Adidas's success.

The closure in Huawei has always been a factory, but it has added more stores in China.

What is the logic behind this seemingly contradictory behavior? Does the cost advantage of China's manufacturing industry have an inflection point and whether the huge domestic demand in the Chinese market really has no attraction for foreign enterprises?

Foreign investment in China slows down

The latest figures released by the Ministry of Commerce show that in the 1~7 months of this year, 13677 new foreign-invested enterprises were newly approved in the whole country, a decrease of 12.3% compared with the same period last year. The actual use of foreign capital (FDI) amounted to 66 billion 670 million US dollars, down 3.6% from the same period last year, an increase of 22 percentage points lower than that of the same period last year.

In the first 7 months, the actual use of foreign investment in China decreased year by year, which is another negative growth in the past 5 years except 2009.

Zhang Yansheng, Secretary General of the academic committee of the national development and Reform Commission, said in an interview with reporters that in fact, since 2005, foreign investment in China has changed in structure: foreign investment in China has shifted from cost push to domestic sales.

Since 2007, especially after the global financial crisis, it is obvious that cost driven and export oriented foreign capital is accelerating the withdrawal from China, because export oriented foreign capital is very sensitive to labor costs and other costs.

"From this year's data, the situation is not too ugly.

If there were no nuclear events in Japan and floods in Thailand, the trend of Japanese capital going to Southeast Asia would be greater, and Japanese investment in China would be good because of the impact of natural disasters.

Zhang Yansheng said.

Last year and this year, because of the grim situation of FDI, Shandong, Jiangsu and other provinces have adopted the investment promotion that has not been done in the past 30 years.

"But even so, it can only delay the downward trend of foreign investment, and it is impossible to reverse this trend."

He said.

Mei Xinyu, a researcher at the Ministry of Commerce, also believes that the pressure of attracting foreign direct investment will continue until next year, or even longer.

Cause of internal and external causes

The continuous decline of FDI has aroused great concern from the government and experts and scholars.

Industry experts believe that two factors, domestic and international, have led to a slowdown in foreign investment in China. Especially when the European debt crisis has not yet been resolved and the US economy stabilizes, fluctuations in FDI flows are unavoidable, and the increase in factor costs such as China's labor force has strengthened this trend.

Mei Xin Yu attributed the decline of foreign direct investment in China to the debt crisis of the European Union.

"Overseas investors are in poor economic conditions, their parent companies are in a predicament, and their ability to invest abroad has declined. They even need to deploy investment to help them."

He said.

Shen Danyang, a spokesman for the Ministry of Commerce, also said that from the international perspective, the European debt crisis has not been properly solved, and the international financial market is more turbulent. The US government advocates the plan of revitalizing the manufacturing sector, and the new emerging market economy countries become the new hot spots of the strategic distribution of pnational corporations, leading to some new changes in the direction of global direct investment flows.

From the domestic perspective, the tight land supply and rising labor costs have also led to the weakening of China's competitive advantage in absorbing foreign capital.

Zhang Yansheng believes that the rise of China's factor cost is the main reason for the pfer of foreign capital.

He said that industrial capital always chooses the least cost local investment.

In recent years, China's foreign investment has significantly accelerated, and the pfer of industrial assets in Europe and the United States has shifted. On the one hand, it shows that a large part of China's industry is export oriented and cost driven. On the other hand, with the increase of labor costs in China and other countries, Europe and the United States will shift their industrial chain's division of labor to other cheaper labor areas.

In addition to rising costs, China's economic restructuring has also led to a decrease in foreign investment in China.

If Barclays Asia's recent research report pointed out that the Chinese government's emphasis on introducing foreign capital in recent years is more important than quantity, which is also an important factor leading to FDI reduction. More FDI is expected to invest in financial, logistics, medical, tourism, cultural and other service sectors.

Footwear industry needs to reshape its comparative advantages

In recent years, many well-known foreign companies have been reducing their business in China.

The Suzhou factory, which was closed by Adidas, has market news that it will move to Southeast Asia where labor force is much cheaper.

95% of Ito's functional underwear production was in China. In 2012, the company planned to pfer some of its capacity to Southeast Asian countries such as Thailand.

Data show that the labor cost of China is the highest compared with the labor cost of new Southeast Asian countries.

The weakening of cost advantage has made the society more worried about the withdrawal of foreign capital from China.

It is believed that the reduction of foreign investment in China is due to the fact that China's domestic costs are rising, and that it is mostly due to the poor economic conditions of overseas investors.

In his view, China's human resources, infrastructure, public services, supporting industries and other advantages, even if not unique in the world are rare, China is the only country in the world with the United Nations (micro-blog) industry classification of all industrial categories.

Developing countries in Southeast Asia can not catch up with China simply by relying on cheap labor and cheap land.

He believes that the promotion of labor costs is not entirely negative news for foreign invested enterprises.

"It is the increase in wages that has created the prospect of continued strong expansion of China's domestic consumer market, which has attracted more and more foreign investment enterprises focusing on domestic market."

He said.

The report released by Barclays also said that in the medium to long term, China will still be attractive to overseas investors in the future because of its good supply chain, huge domestic market, economic diversification and the scale of its economy.

Zhang Yansheng opposed China's comparative advantage "no substitute country".

He said that the rise in labor prices is the biggest change in labor intensive industries in China. In the next 5 years, the trend of such industries is very obvious, and China's low cost advantage will come to an end.

Labor intensive industries cost advantage no longer, it is likely to affect employment in a certain period of time.

Therefore, when labor prices are no longer cheap, our government should work hard in vocational education and training, improve the ability of workers and workers, improve the service ability of labor industry, expand the channels for re employment, and improve the living environment of SMEs and service industries.

"If these problems are not solved, there may be traditions in the future.

The industry will no longer have the advantages and the new industry will not catch up. When the time comes, the economic problem may be 7, rather than 8.

Therefore, the pformation of labor-intensive enterprises is also a problem that China needs to solve in the medium and long term through adjustment and reform.

Zhang Yansheng said.