Was China's place as the largest destination for FDI inevitable?
Keith Lamb

Editor's note: Keith Lamb is a University of Oxford graduate with an MSc degree in Contemporary Chinese Studies. His primary research interests are China's international relations and "socialism with Chinese characteristics." The article reflects the author's opinions and not necessarily the views of CGTN.

China's Two Sessions 2021 is now in full swing. This important gathering is comprised of two back-to-back meetings from China's two main political bodies: the Chinese People's Political Consultative Conference (CPPCC), which comprises over 2,000 members from diverse sectors of Chinese society, and the National People's Congress (NPC) which is China's top legislative body.

For those fixated on China's future such as foreign investors, the Two Sessions provides an opportunity to understand China's priorities for the coming year. On this year's agenda, the draft outline of the 14th Five-Year Plan and the long-term goals for the year 2035 will be discussed. Then there will be reviews covering national economic and social development as well as local and central budgets.

For foreign investors, it is also imperative they understand how and why China has become so interesting to them today. Interesting is in fact an understatement because as the newly released report by the United Nation Conference on Trade and Development shows China now leads the way when it comes to foreign direct investment (FDI).

FDI inflows due to COVID-19 have fallen across the world but especially so in developed countries where flows plummeted by 69 percent to an estimated $229 billion. In contrast, developing countries' FDI flows decreased by 12 percent to an estimated $616 billion. The U.S. recorded a 49 percent drop in FDI to $134 billion while China saw a growth of 4 percent which means China, with an inflow of $163 billion, tops the world for FDI.

Certainly, the black-swan event that is COVID-19 has had an impact on FDI inflows. For example, developed states are still in lock-down while much of East Asia is open for business. However, the trend of declining FDI flowing into the developed world was dropping well before COVID-19. Thus, COVID-19 has merely increased the speed of a longer-term trend.

While FDI, in Europe and North America, will certainly bounce back, after the pandemic has cleared, its proportion is nevertheless set to diminish for the foreseeable future. This is because, when looking purely at market forces, which may well be described as "inevitable" by traditional economists, developed countries have less to offer transnational capital and smaller mobile business entrepreneurs.

In developed countries, in terms of labor arbitrage, there are fewer bargains to be had. Of course, there is a lot of talent in the West which can justify higher salaries. However, in developing countries such as China where education is sacrosanct, the high-tech workforce is rapidly catching up. Indeed, even when China was poor, its well-disciplined educated labor force was one of the keys to attracting FDI.

People visit the renovated East Nanjing Road Walkway in east China's Shanghai, September 12, 2020. /Xinhua

People visit the renovated East Nanjing Road Walkway in east China's Shanghai, September 12, 2020. /Xinhua

When it comes to the West, consumer markets are already well developed. While they can't be ignored there is less room for their growth. Indeed, if one considers the Raegan-Thatcherite neoliberal revolution that extended credit to consumers then one may well judge that consumption is practically on life support.

With a dollar in crisis and money printing out of control, the days of Western and especially U.S. consumers living beyond their means (which is a nice way to say the rest of the world pays for their free lunch) could come to an end quicker than anticipated.

Changing focus to the developing world, it's notable that FDI declined across the board though just not as precipitously as in developed states. In contrast, China had a slight rise which sets China out from the rest of the developing world. As such, there are more than just simple "inevitable market forces" at play.

The key to China's FDI growth is that it has furnished its free market with a solid infrastructural foundation. It's more than just having superb, railways, highways and ports which lowers export costs. China comprises the entire R&D infrastructure in a number of free trade zones that are able to rapidly get a company's idea transformed into a product.

For high-tech industries, the term "Shenzhen-time" encapsulates this entrepreneurial dream. Here novel high-tech electronic ideas can be brought to life in days rather than weeks. In addition, Shenzhen attracts the best technologically geared minds China has to offer.

China's consumer market is clearly already huge and by this virtue will naturally attract FDI. However, under China's strategy for dual circulation, economic consumption is set to boom. In turn, Chinese consumers want access to top-notch Western and Japanese products and it is this demand that continues to pull industry giants like Tesla to China.

These specific Chinese factors for FDI growth cannot be described as inevitable. Had China followed the "naturalized" ideology of neoliberal free-market growth then clearly the huge infrastructure China has built would have come to nothing because it's not immediately profitable.

Likewise, the expanding consumer freedoms that have come with China's opening-up have been well thought out beyond the needs of capital accumulation. This is clearly demonstrated in China's five-year and longer-term plans.

In addition, China's green revolution that is in the process of beautifying China's cities, makes China a livable environment for those in command of foreign capital as well as Chinese citizens who buy their products and work in their firms. This greening process certainly wouldn't have been carried out if left to the whims of the free market and capital.

In essence then, looking at global neoliberal market ideology there is an inevitability in FDI inflows to the developing world as a whole as it seeks higher returns on its investment than what could otherwise be found in their developed homelands. China's sheer size further makes it a magnet for FDI.

However, the very specific development model China has followed magnifies China's attractiveness. Ironically, China now pulls in more FDI to its market than any other country precisely because it didn't blindly follow neoliberal market ideology. Yes, it has borrowed but importantly China never let this ideology and the class interests of capital swamp the broader democratic interests of Chinese society as a whole.

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