The Phenomenon Of Foreign Capital Withdrawal In China'S Garment Industry

The subtle changes in attracting foreign direct investment in China are becoming more complicated this year.

In October 23rd, the latest global investment trend monitoring released by the United Nations [micro-blog] UNCTAD showed that in the first half of 2012, China absorbed foreign direct investment (FDI) of 59 billion 100 million US dollars, down 3% from the same period last year, but it still surpassed the United States and became the largest destination of foreign direct investment in the world.

Foreign direct investment is an important index for measuring and evaluating the ability of an economy to import foreign capital. It is also regarded as a thermometer for observing the openness and competitiveness of an economy.

According to the latest statistics of China's Ministry of Commerce, in the first nine months of 2012, 18025 new foreign-invested enterprises were newly approved in the whole country, a decrease of 11.7% compared with the same period last year. The actual amount of foreign capital invested was 83 billion 420 million US dollars, down 3.8% from the same period last year.

Since November 2011, China has attracted FDI for several consecutive months of negative growth.

When some scholars analyze the data, they believe that foreign direct investment will gradually decline.

However, an official who does not want to be named by the Ministry of Commerce said that the utilization of foreign capital in China is in a period of adjustment. The overall scale of utilizing foreign capital has not declined significantly, and the Chinese market is still attracting foreign investment.

Foreign capital goes easy.

In some eastern coastal areas where foreign capital is concentrated, foreign investment has attracted considerable attention since last year.

"Media coverage is different from reality."

In October 10th, Zhao Minhao, director of the China Korea arts and Crafts Association Affairs Bureau, said.

In the past month, South Korean media reports about the withdrawal of Korean enterprises in Qingdao, China, caused a great stir.

The Chosun Ilbo quoted the source of the Ministry of knowledge economy of Korea as saying that 14 foreign invested enterprises in Qingdao were withdrawn to the Korean mainland.

This has become a new example of continuous withdrawal of foreign capital from China.

Foreign direct investment attracted by China has been declining since November 2011. Many people believe that this is a common phenomenon, not a case.

"They are reinvesting in Korea."

Zhao Minhao said that some Korean jewelry companies actually settled in Jeonbuk, Korea, but their factories in Qingdao were not closed.

It is understood that these enterprises mainly produce metal handicrafts, products sold to Europe and the United States.

Similar to the practice of the return of the US manufacturing industry, the South Korean government has introduced some preferential policies to encourage overseas Korean enterprises to return home and support some enterprises in response to the recall of the government.

Most companies value the benefits of the reduction in export tariffs after the signing of the free trade agreement (FTA) between the Republic of Korea and the United States and the European Union. The tariff on products exported from Qingdao is close to 11%, and exports from Korea can be reduced by half.

The evacuation of "virtual" is well known, but the rapid growth of local utilization of foreign capital is hardly known.

Deng Li, deputy director of Qingdao Municipal Bureau of Commerce, revealed that in January 2012 -9, the city actually utilized foreign capital of 4 billion 825 million US dollars, an increase of 32.1% over the same period last year, of which foreign exchange verification reached 3 billion 914 million US dollars, which surpassed the annual level of 3 billion 630 million US dollars last year.

Qingdao has ushered in the best year for foreign capital utilization.

In another foreign investment concentrated area of Suzhou, Adidas, the famous sports brand, closed its only direct factory in China, the production line or moved to Southeast Asia.

At the end of October 2012, the factory workshop of Tengfei new Su Industrial Park in Suzhou Industrial Park has stopped production.

Earlier, Adidas claimed that the closure of the plant was "a strategic consideration of reintegrating global resources".

While closing the factory, the company began building a new logistics centre in Suzhou.

Chen Jinjian, deputy director of Qingdao Jiaozhou economic and Technological Development Zone, has witnessed the rise and fall of foreign-funded enterprises in the park. He believes that there are three reasons for the withdrawal of those enterprises: first, the poor operation of the enterprises; two, the impact of the national industry and environmental protection policies; and three, the increase in production costs.

Due to rising labor costs and rising raw material prices in China,

System

Some labor-intensive enterprises, such as toys, were the first to be hit. Indeed, some foreign owned enterprises were closed down or pferred.

"The rise in labor costs is due to inadequate labour supply."

A foreign businessman in Qingdao believes that the labour market is changing faster than expected.

"When we first came to this place in 1995, many of the rural migrant workers were waiting in front of the company to find jobs. After more than a decade, they found no workers."

As Europe and the United States economy has not yet got rid of the crisis, the market demand has shrunk, and overseas orders have been greatly reduced.

In addition, some of the orders have been lost to India, Vietnam and other countries, and some small and medium-sized foreign capital enterprises have been operating difficultly and are on the brink of being eliminated by the market.

In the first nine months of 2012, the eastern region actually used foreign capital of 70 billion 220 million US dollars, down 5.6%.

Because of the total utilization of foreign capital in the whole country, the proportion of "one side is dominant" in eastern China accounts for 84.2%, so the eastern region is the main reason for the decline in foreign capital utilization.

However, from Qingdao, Suzhou and other places, although the production costs, raw material prices and RMB appreciation have led to the withdrawal of foreign enterprises in some industries, the scale of foreign capital flowing out of China has been seriously exaggerated.

Insiders who interviewed by the finance and economics reporter reminded that what really needed warning is the hidden crisis behind the decline of FDI and the difficulty of opening up the crux of the policy.

Behind the imbalance of foreign capital

Although China still attracts the most foreign investment in total volume, the pattern of foreign investment growth and source imbalance has not been alleviated.

According to the data released by the Ministry of Commerce in October 19th, the actual use of foreign capital in the first three quarters of this year dropped by 3.8% over the same period last year.

In response to the decline in foreign investment, the Ministry of Commerce has organized a special symposium. The heads of multinational corporations have expressed plans and determination to expand investment in China.

Ministry of Commerce officials also believe that the decline in foreign investment is temporary, and most multinational companies have not lost confidence in the Chinese market.

The joint China World Trade Center conference report also confirms the judgement that China is still the largest foreign direct investment destination in the world in the first half of this year.

The statistics of inflow and outflow of foreign capital belong to the Ministry of Commerce and the State Administration of Foreign Exchange respectively.

Data from the State Administration of foreign exchange showed that the inflow of direct investment in China in the first half of 2012 was much higher than that in outflows, with a net inflow of US $118 billion 100 million, an increase of 6%, continuing the trend of growth since the first half of 2009.

Ma Yu, a researcher at the Ministry of Commerce and international trade and Economic Cooperation Research Institute, believes that the use of foreign capital is not as optimistic as expected.

In recent decades, the total scale of FDI attracted by China has gone up, but its share in the global FDI stock is going down.

In 2011, China's actual use of foreign capital was US $116 billion 11 million, an increase of 9.72% over the previous year, a record high.

In Ma Yu's view, the share of the global FDI stock is more valuable than the total scale of foreign capital utilization, and can better reflect the competitiveness in the international market.

China's share fell from around 14% in 1994 and 1995 to around 7% in 2011.

Starting from the 80s of last century, attracting foreign investment into the eastern coastal areas attracted by preferential policies, among them, the Guangdong region is attracting foreign investment from China, Hong Kong, Macao and Taiwan. Shandong attracts Korean foreign capital, while the Yangtze River Delta region attracts foreign, American and Japanese foreign investors.

From the source point of view, China's foreign investment mainly comes from Asia, especially in Hongkong.

"This is totally out of line with the pattern of international investment. From the international point of view, more than 80% of foreign investment is invested by developed countries, while developed countries account for only about 12% of our foreign investment."

Ma Yu commented.

Europe and the United States export mostly products in the field of high and new technology. They are knowledge intensive. Especially, the technology spillovers of foreign-funded enterprises from the EU are more intense. Therefore, they become the target of attracting investment everywhere.

The low proportion of foreign investment in Europe and the United States also reflects the fact that the gap between China's manufacturing industry and that of Europe and the United States is relatively large, and it is difficult to undertake its pfer.

China's foreign investment is uneven.

Taking the data of January -9 months of this year as an example, the actual use of foreign capital in the eastern region is 70 billion 220 million dollars, accounting for 84.2% of the total of the country. The actual use of foreign capital in the central and western regions is 6 billion 990 million and 6 billion 220 million, accounting for 8.4% and 7.4% of the total amount of the country.

In the past, many people had expected that some of the labor-intensive enterprises in the eastern region would be pferred to the central and western regions. At present, there was no such sign, at least the signs were not obvious.

The final assembly and production of some labor-intensive products in China has begun to shift outwards.

From the trade surplus between China and other countries, such as Vietnam and other Asian less developed countries, it can be seen that the surplus of Vietnam's exports is increasing and Vietnam is in deficit.

At the same time, the surplus of Vietnam's exports to the United States and Europe is increasing, and similar phenomena exist in underdeveloped countries in South Asia and East Asia.

In the view of Wang Zhi, a senior economist at the US International Trade Commission, such a pfer has not yet been completely ended. The developed countries still regard China as the final producer of medium technology and high technology products.

Even if FDI declined last year, it does not mean the loss of competitiveness in China in the short run.

A foreign business person in Qingdao said that some Chinese entrepreneurs were moving the labor force to Malaysia, Vietnam, Indonesia and Malaysia, and found the problem after they got the order: because the industrial chain is not matched, many accessories still need to be imported from the country, and the cost outside the labor force has increased a lot.

Deputy Secretary General of the Chinese Secretariat of the China ASEAN Business Council

It is believed that the recent rise in labor costs in China has led individual enterprises to shift their production to some ASEAN countries, but this is only the choice of a few enterprises, rather than a general phenomenon.

"China's advantages can not be replaced by other countries.

First, China is a single large market with the consumption capacity created by 1 billion 300 million people; second, China's supporting industries are strong; third, although some eastern regions have problems of labor shortage, there is still room for them in the central and western regions.

Xu Ningning said.

Some of the respondents believe that the consumption market and supply chain advantages will make some foreign enterprises stay in China.

Mark Spelman, head of global strategy for Accenture strategy consulting, believes that although there are fluctuations in the short term, China will continue to attract foreign investment, but the situation is becoming more and more complex.

He noted that emerging market countries' direct investment in China is on the rise.

In Spellman's view, when considering the location of investment, the supply chain, labor cost and consumer market will affect the investment decisions of enterprises. The markets of different countries have different characteristics and structures. It is more important to make use of the advantages of different markets to build a global production and sale network, which makes it impossible for us to simply talk about the return of manufacturing industry.

China is still big.

After more than 30 years of rapid development of reform and opening up, some institutional and institutional problems have slowed down the pace of foreign capital expansion in China. Once the policy is relaxed, China has huge policy space to use foreign capital.

In the initial stage of reform and opening up, there was a serious shortage of domestic construction funds. At that time, the primary purpose of foreign capital utilization policy was to introduce funds.

After more than 30 years of development, there has been an increasing divergence in understanding the use of foreign capital, insisting on using foreign capital and insisting on the threat of foreign investment.

In order to quell the internal disputes and complaints from foreign-funded enterprises, in April 6, 2010, the State Council issued document No. 9 entitled "some opinions on further improving foreign investment".

Document No. 9 embodies the idea that the foreign invested enterprises and other types of enterprises operate equally in China and produce the same products and implement the national treatment.

The document has 20 measures, including revising the catalogue of foreign investment industry guidance, expanding the scope of opening up, and encouraging foreign capital to take part in the reorganization, pformation, merger and reorganization of domestic enterprises by means of merger and acquisition.

This has not dispelled the doubts of some foreign-funded enterprises. Foreign companies have even been "disappointed" about the list of foreign investment industries completed in December that year. Some of the major changes have not changed, and some have tightened access conditions.

"All foreign investment projects need approval. Whether encouraged or restricted, some projects are approved by the State Council and relevant departments according to the size of investment and the industry. Some are approved by local governments."

A person who did not want to be named said.

For example, in the real estate field, China does not restrict the entry of foreign capital. According to the regulations, local governments have no power to ratification. Foreign investment in the real estate sector must be filed by the Ministry of Commerce for archival filing before they can go through the formalities for foreign exchange.

The above personage said that such a record is not the same as approval. The MOFCOM can make use of the record time to control the rhythm of foreign investment projects.

In the reform of foreign capital examination and approval, the Ministry of Commerce simplified the procedures of examination and approval and delegated the right of examination and approval in recent years.

In recent years, China has abolished and simplified the 5 categories of examination and approval, and delegated the 25 categories of examination and approval authority to the local authorities.

Last year, we began to study new ways of online approval and contract formatting.

Too many stringent foreign investment projects often make some foreign-funded enterprises who are new at first to be at a loss.

At present, the approval of foreign-funded projects involves many departments such as the NDRC, commerce, land and resources, finance and taxation, foreign exchange management and so on. "It is very normal for a foreign investment project to cover more than 100 chapters".

In addition to market access, China has greater policy space in opening the market.

"For example, basic telecommunications, when we joined the WTO ten years ago, we stated that foreign capital can be done, but foreign investment can not be controlled. But ten years later, let foreign capital make basic telecommunications? Let private capital do it? At the most, do some value-added information services. Upstream is impossible to enter."

These people said.

At present, China's foreign-funded enterprises mainly invest in Greenbelt, and relatively few mergers and acquisitions.

M & A investment management is more stringent, for example, the acquisition target is state-owned enterprises, which involves the loss of state-owned assets; for example, private enterprises involve the pfer of well-known brands.

In fact, after years of investment promotion, the layout of investment projects with foreign investment in China has been formed, so the space for investment has narrowed.

Therefore, a number of officials in the two circles have called for the introduction of a new policy of utilizing foreign capital to guide the flow of foreign capital and promote China's industrial upgrading.

At the same time, we should define the boundary of government management as soon as possible, and reform the management mode of the government. In addition to involving market monopoly and industrial safety, the government must approve it.

Di Anhua, chairman of the China Chamber of Commerce in the United States, said in an interview with "finance and economics" reporter: "China also needs to continue to improve its system in terms of investment approval and administration, and gradually relax market access so as to release more investment space."