On October 18th, the country president Xi Jinpin At the opening ceremony of the third "the Belt and Road" International Cooperation Summit Forum, the keynote speech announced that China would completely eliminate restrictions on foreign investment access in manufacturing.

This is another step forward on the basis of the basic opening up of the national manufacturing industry and the clearance of the negative list manufacturing industry in the free trade pilot zone.

Nationwide, according to the Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Edition), there are only two items in the manufacturing industry: "the printing of publications must be controlled by the Chinese side" and "the prohibition of investment in the application of processing technologies such as steaming, frying, roasting and calcining of Chinese herbal pieces and the production of traditional Chinese patent medicines and simple preparations confidential prescription products".

Within the scope of the Pilot Free Trade Zone, in the "Special Management Measures for Foreign Investment Access in the Pilot Free Trade Zone (Negative List) (2021 Edition)" implemented on January 1, 2022, the manufacturing industry items have been completely cleared, and the overall number has been reduced to 27, including 17 prohibited items and 10 restricted items.

Release key signals

In the eyes of the outside world, the statement of the comprehensive opening of the manufacturing industry on the 18th has released an important signal of China's economic transformation.

The Chinese manufacturing industry has moved from the mid to high end in the global production chain, supply chain, and value chain. This comprehensive opening up is good news for the world, especially for the manufacturing industry. "Wei Jianguo, Vice Chairman of the China Center for International Economic Exchange and former Vice Minister of Commerce, told First Finance that the comprehensive lifting of foreign investment access restrictions in the manufacturing industry has released three key signals.

Firstly, China relies on the "backbone" of manufacturing to stand up, and then, to become rich and strong, it must continue to rely on the "backbone" of manufacturing. Secondly, China's high-level opening-up to the outside world will start with the complete lifting of foreign investment access restrictions in China's manufacturing industry. Thirdly, the future development of the Chinese economy will still rely on the real economy. This has changed the path of major European and American countries gradually moving towards the service industry and neglecting the manufacturing industry in the past. China has a strong foundation and support in the manufacturing industry, and further improvement is needed. While developing the service industry, we will continue to increase the upgrading of the manufacturing industry, and both hands must be hard.

Bai Ming, a member and researcher of the Academic Degrees Committee of the Research Institute of the Ministry of Commerce, also told First Financial that China must actively participate in economic globalization and utilize all available high-quality resources from around the world in order to transition from a manufacturing powerhouse to a manufacturing powerhouse. Only in this way can the pace towards becoming a global manufacturing powerhouse be accelerated. The expansion of the negative list of the manufacturing industry in the free trade zone from zero to the national level is a comprehensive opening up, indicating China's firm attitude towards opening up to the outside world.

Since 2017, China has revised the negative list of foreign investment access for five consecutive years. The 2021 version of the national and pilot free trade zone negative list of foreign investment access has been reduced to 31 and 27, respectively. In many industries and fields such as seed industry, automobile, ship and aircraft manufacturing, securities, banking, insurance, and vocational training, restrictions on foreign equity ratios have been lifted or relaxed, creating greater market opportunities for foreign investors.

Huang Feng, President of the Shanghai Foreign Investment Association, told First Finance that the national level of foreign investment access in manufacturing has been basically opened up, and this comprehensive opening up is more of a statement. Against the backdrop of sluggish global economic recovery, China faces challenges in attracting foreign investment and needs to continue to implement more targeted and valuable policies to stabilize foreign investment.

Adjustment of foreign investment structure

According to data from the Ministry of Commerce, in the first eight months of 2023, the actual amount of foreign investment used nationwide was 847.17 billion yuan, a year-on-year decrease of 5.1%. This is the first decline in this data in three years.

The head of the Foreign Investment Department of the Ministry of Commerce proposed that the main reason for the decline in actual use of foreign investment is the slow recovery of the world economy, the lack of global cross-border investment, and the combination of a large base in the same period last year, resulting in a downward growth rate. Foreign investment is a market behavior, and periodic fluctuations are normal. Therefore, it depends on both scale and structure; We should look at both the present and the long term.

Against the backdrop of a year-on-year decrease in foreign investment, in the first eight months of this year, China's manufacturing industry actually utilized 239.95 billion yuan of foreign investment, a year-on-year increase of 6.8%. The actual use of foreign investment in high-tech manufacturing increased by 19.7%, with electronic and communication equipment manufacturing, medical equipment and instrument manufacturing increasing by 39.7% and 25.6%, respectively. In the high-tech service industry, the actual use of foreign investment in research and development and design services increased by 57.1%. At the same time, 33154 foreign-invested enterprises were newly established, a year-on-year increase of 33%.

Since the beginning of this year, many foreign commercial enterprises have continued to expand and deepen their investment in China.

In September, DuPont in the United States launched a large-scale new factory in the Yangtze River Delta, while the production and R&D integrated base of the British Haomai Group in the Asia Pacific region opened in Shanghai. The chemical giant Solvay Group announced the completion of the expansion project of the China Research and Innovation Center.

In August, multiple new Shanghai factories of Covestro were successively put into operation, and optical giant Zeiss China entered the Shanghai Pudong New Area Postdoctoral Innovation Practice Base, which will create a stronger research and talent incubation platform. Maximilian Foerst, President and CEO of Zeiss Greater China, told First Financial: "We have not seen China as a low-cost production base. This has never been our strategy. Instead of transferring products produced in China, we will consider placing more production and research and development in China

In recent years, China's absorption of foreign investment has continued to grow steadily. According to the "China Foreign Investment Statistics Bulletin 2023", in 2022, China's actual use of foreign investment for the entire year was 189.13 billion US dollars, an increase of 4.5%, surpassing 1.2 trillion yuan for the first time in RMB terms. High tech industries have become important growth points. The investment in China by the European Union and ASEAN increased by 95.3% and 9.5% respectively.

In Wei Jianguo's view, looking globally, China's super large market remains quite attractive. There is a huge demand for medical machinery, advanced technology, 5G applications, and so on. Nowadays, the comprehensive relaxation of foreign investment access restrictions in the manufacturing industry means that China will place greater emphasis on foreign investment and is expected to continue to accelerate its pace on the basis of continuous years of steady development.

The research report released by PwC on October 17th, titled "Executive Insights of Multinational Enterprises in China: Challenges and Opportunities for Brand Growth," found that most surveyed multinational enterprises in China remain optimistic about the Chinese market. Market size, economic growth, and consumer recognition are the three key factors that attract multinational enterprises to continue investing in brand building in the Chinese market. However, multinational enterprises also face geopolitical uncertainty The slowdown in market growth and the high competition pressure from local Chinese brands are causing difficulties.

Upgrade in a Challenge

How should China's manufacturing upgrading continue to break through during the period of reshaping the global value chain? How should we respond to challenges in attracting foreign investment?

Wei Jianguo proposed that there are still some key technologies and complete sets of equipment in China's manufacturing industry that have bottleneck issues, such as chips, lithography machines, etching machines, etc. China should invest more energy in addressing these issues and make good three moves.

Firstly, all manufacturing industries should prioritize technological innovation. Especially in the current digital economy, it is not only necessary to enhance innovation in traditional manufacturing, but also to increase investment in industries such as robotics, new materials, and new processes. Secondly, under the overall policy of technological innovation, talent is the key. China's manufacturing industry not only needs to have its own local talents, but also needs to attract a large number of foreign talents. Finally, we need to create the best global business environment. To promote the upgrading and development of the manufacturing industry, it is also necessary to create the best global business environment, matching all production factors, namely capital, talent, technology, land, and information, in order to achieve the effect of minimum investment and highest efficiency.

Wei Jianguo believes that in the context of the United States' demand for a return of manufacturing, China should do a good job in unifying a large market, because market resources are China's greatest advantage internationally, but this advantage has not yet been fully realized. Whether to place factories in the United States and then export them to the Chinese market or directly place factories in China, many executives of American and European multinational corporations are more skilled and thoughtful than us. This is also why Musk, Cook, and many multinational corporations in Europe and America have visited China recently. Only large markets can attract large projects.

In his view, the era of relying on preferential policies and low-cost labor to attract foreign investment has passed. To achieve new means and goals of attracting foreign investment, in addition to relying on a large market, dividends should also be paid to rules, regulations, management, and standards, and institutional openness should be implemented as soon as possible. In addition, the current domestic consumption recovery momentum is weak, and more policies need to be introduced to enhance it. He proposed that the scale of attracting foreign investment this year is expected to reach 230 billion to 250 billion US dollars.

Gao Ruidong, Chief Economist of Everbright Securities, also stated at the recent China Macroeconomic Forum that foreign investment in China first values the Chinese market, followed by China's business environment and factor cost related advantages. If the overall total demand is insufficient and prices are relatively low, China's attractiveness to foreign investors will systematically decrease. Focusing on expanding total demand and ensuring economic growth at a level that is in line with potential output will be beneficial for promoting the sustained spillover effects of foreign capital and technology towards China.

In order to address the challenges, on August 23, the State Council issued the "Opinions on Further Optimizing the Foreign Investment Environment and Increasing the Attraction of Foreign Investment", proposing 24 specific measures from six aspects: improving the quality of foreign investment utilization, ensuring the national treatment of foreign-invested enterprises, and continuously strengthening the protection of foreign investment.