Reshoring prompts a dip in US FDI to China

Beijing: Foreign direct investment flows from the United States into China are on the wane, partly as a result of the reshoring of manufacturing activity and rising labour costs, the Chinese Ministry of Commerce has said. The decline in US investment is closely connected with the country’s economic slowdown and a preferential national policy of attracting investment to stimulate the economy, ministry spokesman Shen Danyang said. This prompted some reshoring — the process of returning jobs and manufacturing to the company’s home country — of manufacturing activity, Shen said while insisting this will not become a general trend, state-run China Daily reported. [caption id=“attachment_133208” align=“alignleft” width=“380” caption=“China outbound investment increased, even as US FDI dipped. Getty Images”]  [/caption] However, the MOC said overall foreign direct investment (FDI) into China increased 9 per cent year-on-year. According to new figures, FDI in China increased to $8.33 billion in October, a rise of 8.75 per cent vis-a-vis the year-ago period. While this was an improvement on 7.88 percent FDI growth in September, it was lower than the 11.11 percent expansion seen in August. Between January and October, US investment fell by 18.13 percent year-on-year to $2.57 billion. In contrast, investment from the 27 European Union (EU) nations increased by 1.05 percent to $5.51 billion between January and October. “The grim economic situation in the US and EU is the major cause of the decline, or the slowing growth, of their investments in China. Faced with such gloomy prospects, many companies are unwilling to invest, or to add investment,” Shen said. “US enthusiasm for absorbing investment also provides encouragement for American businesses that own operations in China to swing back to the US and build factories there,” he said. “The reshoring negatively impacted China’s performance in absorbing US investment in the high-end sector,” he said. A recent report by Boston Consulting Group said 3 million new jobs will be created in the US by 2020 as Chinese labour costs rise and reshoring of manufacturing activity continues. Experts said the rising cost of labour in China is also pushing foreign investors to move their production and investment from China to neighbouring countries. “The reason behind the decrease (in US investment) is more likely related to foreign companies transferring production to other Asian nations, such as Vietnam and Indonesia, that enjoy lower labour costs,” said Zhou Shijian, an expert on Sino-US economic relations at Tsinghua University in Beijing. Nike Inc, the world’s leading maker of sportswear, said Vietnam has already replaced China as its largest shoe-manufacturing base. However, Shen pointed out that reshoring has only happened with a handful of companies and is unlikely to become a broader trend. “I have no doubt about the future growth of US investment in China,” he said. “Despite veiled words (from some foreign companies) about China’s investment environment, the country is still the world’s most attractive investment destination. Companies from different parts of the world are investing, and will actively add investment, here,” he said. Investment from Japan has risen by as much as 65.5 percent year-on-year and investment from 10 other Asian nations increased by 20.67 per cent year-on-year to USD 81.9 billion. After the March 11 earthquake, which caused the deceleration of the Japanese economy, Japanese companies “realised investment activities in China would be very beneficial, so they either transferred production or increased their investment in the country”, Shen said. China, too, has been increasing its outbound investments. The first 10 months of the year saw China’s outbound direct investment climb by 14.1 percent to $46.25 billion, 33.7 percent of which was realised through mergers and acquisitions. PTI