China Report
Most economist feel that the amazing growth in GDP
achieved so far by China will start to slow down over the com-
ing years. However, even with China slowing, its economy is
still expanding at double the pace of America’s. So growing at
7 percent literally means that the Chinese economy will dou-
ble in size in the next ten years. Such growth would bring the
Chinese economy to about the same size as America’s is now.
With the U.S. growing at only around 2-3 percent per annum
(see GRAPH 2), speculation as to when China takes the crown
is gaining momentum daily. However, no one is picking an ex-
act date for this to occur, not just yet. What ultimately mat-
ters more than absolute size is the income earned by the people
within a country. And it will be many more years before per
capita GDP in China will overtake that of the U.S. under any of
these measures.
So, are foreign companies still investing in China? The
short answer is “yes.” According to the United Nations, annual Foreign Direct Investment (FDI) flows to China grew
from $2 billion in 1985 to an estimated $121 billion in 2013
(see GRAPH #3), and may have actually reached $127 billion
in 2013. The U.N. further estimates the stock of FDI in China
through 2012 at $832.9 billion. This is a strong indicator of investors’ confidence that the world’s second-largest economy can
keep growing at a solid pace while retooling its growth model.
As indicated in GRAPH #4, China was the world’s second-largest destination for FDI flows in 2013 (after the United
States). You might wonder where this FDI is coming from.
Asian companies are by far the biggest investors in China, with
investment from the top 10 economies in the region including
Hong Kong, Thailand and Singapore rising annually by 7.1 percent in 2013 to $102.5 billion.
Investment from the European Union rose 18.1 percent
year-on-year in 2013 to $7.2 billion, while investment from the
United States climbed 7.1 percent to $3.4 billion.
China’s service industries were the biggest draw for foreign investment, pulling in $50 billion, up about 14 percent. Not surprising,
given rapidly rising labor and other costs, investment in manufacturing fell by 5.2 percent, to $38 billion, making up just over two-fifths
of the total. Investment in agriculture, animal husbandry, and fishery
businesses dropped by 2.6 percent, to $1.4 billion.
At the same time this FDI is coming into China, Chinese
companies are expanding abroad. China’s outbound direct
investment by non-financial firms jumped 16. 8 percent to
$90.2 billion in 2013 versus 2012. This growth in external investment has experts predicting that China’s outbound
investment could exceed foreign direct investment in China
sometime in the near future. GRAPH #5 displays China’s
investment history in the U.S.
When you look at the data, the history and forward looking
estimates it appears that compared to other locations China is
a reasonably safe place for foreign companies to invest. This
is especially true for those companies involved in the Coatings
