Chinese province invites overseas investors to link up with strategic supply chains

Chinese province invites overseas investors to link up with strategic supply chains

Chinese province invites overseas investors to link up with strategic supply chains

China’s eastern economic powerhouse of Jiangsu has become the first province to invite foreign businesses to take part in its strategic industrial chains, part of a national effort to retain and attract foreign investors.

But analysts expressed concerns over the strategy’s long-term viability as geopolitical tensions intensify.

In a fresh batch of incentives for overseas capital, Jiangsu – China’s second-largest provincial economy after Guangdong – called for overseas participation in “strengthening, supplementing, and extending industrial chains.”

“Foreign-invested enterprises are encouraged to participate in open innovation and development across the entire biopharmaceutical industry chain, and to speed up the implementation of projects,” said the Jiangsu government in a document published last week.

For major projects worth more than US$100 million, it said, land use will be prioritised and visa services will be facilitated for executives, technical personnel and other individuals from foreign-invested enterprises and multinationals.

Foreign participation in the industrial value chain has been promoted by other localities, though in those cases their intentions were signalled less explicitly.

Jiangsu’s initiative … carries significant symbolic weight. It represents a proactive effort to retain foreign investment

Peng Peng, Guangdong Society of Reform

The Guangdong government also called for foreign participation in its industrial development in a document published in March 2023.

“As Western countries exercise control over Chinese funds entering their vital supply chains for security reasons, foreign capital is also withdrawing from China,” said Peng Peng, executive chairman of the Guangdong Society of Reform, a think tank connected to the provincial government.

“Jiangsu’s initiative to encourage foreign companies to participate in these crucial supply chains carries significant symbolic weight. It represents a proactive effort to retain foreign investment.”

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He added that further observation is required to determine whether this measure is a temporary stimulant or a long-term reorientation, as both sides are balancing national security and supply chain interdependence.

“If the ‘decoupling’ strategy becomes entrenched in the West, it becomes challenging to foresee the sustainability of China’s engagement policy,” Peng said.

An opaque policy environment and sluggish economic expansion have deterred foreign investors from scaling up their businesses in China, and rising geopolitical uncertainties continue to add risks to foreign trade, leading to an exodus of capital.

Going forward, China will remain a bit selective … barriers will probably remain

Xu Tianchen, Economist Intelligence Unit

Confidence among China’s foreign business community has also been eroded by an increasingly volatile regulatory environment.

Despite a 74 per cent rise in the number of newly established foreign-invested enterprises in January, foreign direct investment (FDI) in China dropped 11.7 per cent on a year-on-year basis to 112.7 billion yuan (US$15.7 billion), the country’s Ministry of Commerce said last Friday.

China has always had a mixed outlook on foreign enterprises, granting preferential treatment for taxes and land provision but also imposing strict localisation requirements, said Xu Tianchen, senior China economist with the Economist Intelligence Unit.

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“Going forward, China will remain a bit selective,” Xu said.

“It will woo investors into industries where it has enough sway and domestic firms are already competitive. In areas where foreign participation undermines China’s pursuit for self-sufficiency and control over supply chains, barriers will probably remain.”

He added that government incentives and the relaxation of FDI restrictions will mitigate some distrust over China’s operating environment, and participation in China’s supply chain could also be conducive to cost efficiency – as seen in the automotive sector.
On Wednesday, Premier Li Qiang assured a visiting US business group that China’s economy has huge demand potential in advanced manufacturing, urbanisation, consumption upgrade and green energy transformation, and that the country welcomes American firms to deepen their presence there.

“It is hoped that the US Chamber of Commerce and its entrepreneurs will continue to serve as a bridge in promoting communication and mutual understanding between the two countries,” Li told the delegation in Beijing, according to state news agency Xinhua.

The Ministry of Commerce held a round table meeting with foreign businesses on the same day to solicit concerns and comments, especially regarding the implementation of a 24-point policy directive issued last August to optimise the business environment and promote investment.

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