Phenomenon Watch: Foreign investment is leaving China

Since 2004, there has been an outflow of foreign capital from various industries, and the exit of foreign companies from China has accelerated in recent years, mainly concentrated in the manufacturing industry, covering TMT, home appliances, retail and other fields, many of which are multinational giants.

Phenomenological Analysis.Why foreign investorsWithdrawal from China

Withdrawal from Chinaforeign-owned enterprisecanpartforfollowing three categories.

1. Low-end manufacturing enterprises, is also an industry that needs adjustment in China, at present, Chinese local enterprises in this field is fully capable of competing with it, the market competition is fierce;

2. In the course of their globalization strategies, multinational enterprises take measures such as mergers and restructuring to restructure and reorganize their global operations;

3. Multinational enterprises, especially in the IT and retail industries, some of them have withdrawn from the Chinese market due to their inability to adapt to China's conditions.

In-depth foreign investmentReasons for evacuationavailable fromthe following fouraspectCome to see.

NO1: At the policy level, the increase in policy entry barriers and the removal of preferential policies have brought about changes in costs, as well as increased regulatory pressures, making it more difficult than ever for foreign firms to operate.

No 2: From an economic perspective, under the new normal, the business model of multinational enterprises will be under increasing pressure, corporate profitability data is scarce. For many industries, China is no longer an "emerging market", the days of maintaining high profit margins (15%-20%) are gone.

No. 3: At the level of the social structure, changes in demographics and educational attainment have raised labour costs and risks across the board.

No 4: From the technological point of view, multinational enterprises neglect, lack of innovation and lack of market response capability, highlighting the lack of competitiveness.

foreign capitalWithdrawal from Chinatimetables

time	company	industry	events	leavecause
2006	Ebay	TMT	Exit China market	Experiencing strong competition from local firms
2009	Nike, Inc.	footwear	Closure of factories in China and relocation to other developing countries	Inventory, channel issues
2010	Google	TMT	Exit China market	Network censorship, hacking
2010	Matsushita (name)	home appliances	Close China factory and move back to the mainland	losses
2010	Sharp (company name)	home appliances	Close China factory and move back to the mainland	losses
2011	Best Buy (retailer)	retail	Exit China market	sharp fall in profits
2011	Nestlé	fast moving consumer goods	Exit China market	Squeezed out by local firms
2011	Danone, Japanese company	fast moving consumer goods	Exit China market	Squeezed out by local firms
2011	Pepsi	fast moving consumer goods	Core bottling business exits China market	Business strategy alignment
2012	Rakuten (brand)	TMT	Exit China market	Experiencing strong competition from local firms
2012	Adidas (sportswear company)	footwear	Closure of factories in China and relocation to other developing countries	Rising labour costs
2013	Yahoo, Internet portal	TMT	Exit China market	Experiencing strong competition from local firms
2013	Foxconn Technology Group	electron (particle physics)	Closure of factories in China and relocation to other developing countries	Rising labour costs
2014	MSN	TMT	Exit China market	Poor operational performance
2014	Adobe	TMT	Exit China market	Poor business conditions and widespread piracy
2015	Zynga	TMT	Exit China market	Failure of high-level decision-making
2015	Compuware	TMT	Exit China market	Poor operational performance
2015	microsoft	TMT	Mobile phone business closes China factory, moves to other developing countries	Rising labour costs
2015	Daikin	home appliances	Close China factory and move back to the mainland	Rising labour costs
2015	TDK	home appliances	Close China factory and move back to the mainland	Rising labour costs
2015	Funai Motors	electron (particle physics)	Closure of factories in China and relocation to other developing countries	Rising labour costs
2015	singing	electron (particle physics)	Closure of factories in China and relocation to other developing countries	Rising labour costs
2015	Samsung (South Korean electronics company)	electron (particle physics)	Closure of factories in China and relocation to other developing countries	Rising labour costs
2015	Uniqlo (brand)	outfits	Closure of factories in China and relocation to other developing countries	Rising labour costs
2015	Ito-Yokado	outfits	Closure of factories in China and relocation to other developing countries	Rising labour costs
2015	Citizen City	watch	China plant closure	Rising labour costs

dataSpeaking.The other behind the retreatone side

ChinaDepartment of CommerceFDI data

From January to September 2015, 18,980 foreign-invested enterprises were set up in China, up 10.1% year-on-year; the actual amount of foreign investment used was 584.74 billion yuanRenminbi (RMB)($94.9 billion)dollar).In the month of September, the country set up 2,153 foreign-invested enterprises, up 5.21 TP1T year-on-year; the actual amount of foreign investment in use was 59.47 billion yuan (US$9.56 billion), up 7.11 TP1T year-on-year.From January to September, China's foreign investment absorption showed good momentum, in marked contrast to the current decline in global cross-border direct investment. 

Data from Xinhua News Agency

The country's foreign investment absorption in January-September 2015 showed the following characteristics:

1.Stable growth in the overall scale of foreign investment.

2.The industrial structure was further optimized, and foreign investment in high-tech services and high-tech manufacturing continued to maintain its upward momentum.

3.East, central and western regions all showed growth in the real use of foreign capital.

4.The scale and proportion of foreign-invested M&A have both increased substantially.

Shanghai governmentdata

From January to August 2015, there were 32 new MNC regional headquarters, three headquarters-based organizations, and 10 companies recognized as Asia-Pacific headquarters in Shanghai (Henkel, NXP, Energizer and other well-known MNCs have their Asia-Pacific headquarters in Shanghai); nine new investment companies; and nine new research and development centers. By the end of August 2015, a total of 522 regional headquarters of foreign multinational corporations had been established in Shanghai, of which 36 were Asia-Pacific headquarters, 306 were investment companies and 390 were R&D centers.

Shanghai, January-August 2015foreign capitalThe following features are present.

1.From investmentsCountry-by-country view.maindominated by European, American and Japanese companies.Among them, the growth rate of European corporate headquarters accelerated.

2.fromInvestment industrydistributionCome and see.Inregional headquarterscross-borderBusinesses remain predominantly manufacturing.

3.In terms of investment settlement area, the FTAZ becomes theHotspot.

4.frominvestmentgenreCome and see, the R&D centerbecome a trend.As of the end of August 2015, the number of foreign-funded R&D centers located in Shanghai had reached 390, accounting for about 1/4 of Mainland China, including 30 global R&D centers and 15 Asia-Pacific R&D centers, including General Electric (GE) Shanghai R&D Center, DuPont Shanghai R&D Center and Unilever China Research Institute, all of which are the top-level R&D institutions of the Group's global footprint.

outlooklook forward to: The opportunity behind the retreat

NO1: Local Enterprises asThe ontology of innovation, more and morelocalFirms usher in as foreign investors leave ChinanewThe opportunity.

1. Market opportunities are expanding

After the withdrawal of foreign companies from China, the market landscape has changed, more advantageous companies need technology for technological innovation layout of China, and even the world. Huawei, for example, he was able to quickly catch up in the field of mobile communication equipment, the most rapid changes in the technological revolution, and has now become the world's largest mobile communication equipment manufacturers, in fact, is the integration of global research and development resources, using the global market and talent to achieve leapfrog development. In the context of the Internet + era, BAT, for example, Baidu, Alibaba, Tencent and other companies have crossed the border, set foot in other areas, the layout of emerging industries in order to expand their business territory.

2. Investment opportunities are expanding

After a foreign company leaves China, its original business and technology are either hosted or resold to Chinese companies. In the meantime, local Chinese companies are able to quickly gain access to the advanced technology, R&D capabilities, and international sales channels of the acquired companies by conducting mergers and acquisitions at a lower cost.

3. Talent acquisition opportunities are expanding

After the foreign companies leave China, their original R&D teams will inevitably be transferred to local Chinese companies to strengthen the R&D capabilities of domestic companies.

NO2.Foreign companies at the high endmanufacturing industriesinformationTechnological advantages in industries such as banking and financedistinct.surname Suiwith the further liberalization of investment policies in the Chinese market.encourageMore and more foreign-owned enterprisesInThese areasgive full play to one's abilities.

1. Investment opportunities are expanding

A.Clear policy direction in terms of market access

Against the backdrop of China's development, transformation and new normal, China intends to fully liberalize access to foreign investment and implement a "negative list" management model, which means that foreign investors are not required to apply for access permits but only to submit information reports for investments outside the list of special administrative measures, and the organization and business activities of foreign-invested enterprises will no longer be the main regulation. Object. The new Catalogue for the Guidance of Foreign-invested Industries significantly reduces the entries of restricted foreign-invested industries, and explicitly proposes to encourage foreign investment in modern agriculture, high-tech, advanced manufacturing, energy conservation and environmental protection, modern service industry and other fields, and undertake the transfer of high-end industries. It also encourages foreign investment in research and development, and promotes the organic integration of investment attraction, technology attraction and intelligence attraction.

In Shanghai, for example, since the birth of the Shanghai Free Trade Zone (SFTA) in September 2013, the "negative list" has been widely implemented as a core management mode in the SFTA and has become the biggest highlight. 2014 saw a quarter reduction in the number of special administrative measures for foreign investment access in the Shanghai SFTA compared to the previous year. A new version of this year's negative list is under study and will further enhance openness and transparency.

B.From an industry perspective, new industries are in high demand

China's economic development has entered a new normal, with new technologies, new products, new formats and new business models emerging continuously, with a bright future. At the same time, in the process of economic transformation, the role of new industries, service industries and small and micro enterprises has become more prominent, and the development of small, intelligent and specialized production has brought more investment opportunities.

Emerging industries are becoming more attractive to foreign investors. In the automotive industry, for example, more and more multinational companies are setting up R&D centers in China, or establishing R&D centers, or setting up joint ventures with dominant local Chinese companies to undertake R&D functions.

2.Talent acquisition opportunities are expanding

When foreign companies land in China, it also creates a convergence of talents in China. Coupled with the implementation of supporting government policies, more and more overseas managers, scholars, engineers and other high-level talents are returning to China for development.

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