China’s role in shifting Asian supply chain, leveraging Hong Kong key to boosting FDI, top researchers say
Foreign direct investment (FDI) in China fell by 27.9 per cent, year on year, to 360.2 billion yuan (US$49.7 billion) from January to April, the Ministry of Commerce confirmed on Friday.
FDI growth had slowed from 2018-22 after more than a decade of stable growth, Liu added, with weak domestic demand and an economic slowdown among the factors seen to be dissuading foreign investors.
A new round of large-scale global industrial shifts is likely to occur in the next decade
But China should stay on top of “very likely” global industrial shifts over the next decade, Liu said.
Changes since 2018, fuelled by a decline in US-China ties, has seen widespread growth in the homeshoring of capital amid efforts to keep in tech innovation among friendly nations and a competition among developing countries for foreign investment.
“A new round of large-scale global industrial shifts is likely to occur in the next decade,” Liu said while speaking alongside six other economists at Renmin University’s annual China Macroeconomy Forum on Saturday.
“We can predict this from the historical laws of global large-scale industrial shifts that emerged from previous technological revolutions.”
China should also focus on attracting foreign investment into services, information technology and mining, consistent with global themes, Liu added.
Hong Kong is the only city in China that has this advantage
Hong Kong could also help bring in foreign capital as an “English-speaking system that undoubtedly plays a vital role”, Mao Zhenhua, co-director of the Institute of Economic Research at Renmin University, also told the forum.
Hong Kong’s common law system, which is similar to the UK, could also help mainland China attract international capital easily, Mao said.
“Hong Kong is the only city in China that has this advantage,” he added.
Under the “one country, two systems” principle, Hong Kong remains governed by a Basic Law that does not apply in mainland China.
But Mao said that some venture capital and private equity firms that operate in Hong Kong with mainland China investment have struggled to raise capital and withdraw funds.
At this point there’s not that much else China can do
“It is important to address the free flow of foreign capital in and out of [mainland China],” he added.
“That’s why we need to do some serious research on these venture capital and private equity firms in Hong Kong.”
Most of mainland China’s offshore investment comes from Hong Kong, with the figure rising to 72.56 per cent in 2022, up from 49.3 per cent a year earlier.
It helps that Hong Kong, among other Asian investment sources, has been “geopolitically neutral or if anything geopolitically favouring China to begin with”, said Chen Zhiwu, chair professor of finance at the University of Hong Kong.
“[The forum’s experts] are right that China can still rely on Hong Kong as the intermediary,” he said.
“At this point, there’s not that much else China can do,” Chen added, citing a drop in Western investors’ confidence in the world’s second-largest economy.