Editor's note: Matteo Giovannini is a finance professional at the Industrial and Commercial Bank of China in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the author's views, and not necessarily those of CGTN.

Based on economics textbooks, foreign direct investments (FDIs) represent capital invested in a country that offers a high standard manufacturing and service ecosystem for both local consumers and global markets. The direct result of such capital deployment strategy signals not only investors' confidence in the economical and geopolitical state of a host country, but also a stakeholders' willingness to link national economies.

In this sense, there is no place where this phenomenon is more evident than in China. 

According to China's State Administration of Foreign Exchange (SAFE), which recently announced preliminary data from the balance of payments in the first half of 2022, the net inflow of direct investments to China reached $149.6 billion in the first half of 2022, demonstrating that the Chinese market remains a pole of attraction for foreign capital.

The fact that the Chinese market is an important destination for foreign investments is nothing new since a very large amount of capital inflows has helped the country's economy to grow at a high and constant pace from the time China joined the World Trade Organization (WTO) in 2001, turning a poor nation into what is today the second-largest economy in the world.

For a country like China, FDIs represent a crucial component in promoting domestic development and in helping its economy to remain a competitive one in the global marketplace. This is because FDIs, as a key indicator of the level of international integration through long-lasting links between world economies, remain an important vehicle for economic development.

Chinese economy's enormous market size and related market growth potential is probably the most visible factor of attractiveness and something that foreign companies cannot afford to ignore. Last year, China's GDP grew by 8.1 percent to reach about $18 trillion. At this pace, China's economy overcame that of the entire 27-country European Union, which rose at $15.73 trillion.

The strong development of infrastructures that started in the early 1990s is something that sets apart China from many other emerging countries including India. The possibility to facilitate employees' commuting and goods' transportation through roads, highways, bridges, and high-speed rails, becomes an element that nurtures business growth. This is something very attractive for foreign investors that can earn strong returns from a positive combination of lower transaction costs, higher efficiency, and increased profits.

Innovation is another factor that contributes to make China a must go destination for foreign investors. The world's second largest economy has become over the years a hotbed for technological advancement and a place where new business models are implemented. The unique advantage of China is in the size of its internet-using population – a whopping 1.05 billion users – which is more than the U.S. and EU combined.

In addition, the fact that nearly 800 million people in China make daily payments through mobile devices, eight time more that the U.S., makes the country a leader in the rising fintech industry. In China, foreign investors can be easily exposed to new technological applications that could later be implemented back to the countries of the investors' origin.

The presence of a highly educated and competitive labor force, because of domestic universities that are rapidly climbing world rankings once dominated by the U.S. and UK, turns China into an interesting destination for foreign capitals that see in a large pool of readily available local talents an element and a driver to achieve organic business growth.

Trade barriers, such as tariffs and quotas, normally discourage investors to allocate capital in a country due to the resulting artificially inflated prices that weaken demand overseas. Therefore, China's active participation into the global market arena, through export-friendly initiatives such as regional and international free trade agreements, represents a driver that promotes inflow of direct investments to China.

Over the past decade, China has implemented numerous initiatives to optimize and improve its business environment. Since 2012, China's market economy has experienced important progresses through reforms aimed at improving the quality of the market system, enhancing market resource allocation, and providing stronger legal safeguards for investors. As a result, China's ranking in the World Bank's Doing Business report has climbed from 96th place in 2013 to 31st in 2020.

It is now in the interest of China's leadership to persist in the promotion of a favorable business environment, leveraging the country's unique characteristics of political and social stability, so that it can maintain and possibly increase the level of competitiveness of the nation on global markets.

In a decade that is going to coronate China's long run to become the world's largest economy, FDIs are set to continue to play an important role in China's economy.

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