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FDI into China slows down in the first five months of this year

China, touted as the factory of the world, could lose steam in the coming months not only for its role in the coronavirus outbreak but also for its geopolitical moves. Foreign direct investment (FDI) into the country slowed down by about 3.8 per cent in the January to May period of 2020.

Even as investment picked up a little during the April-May period, after recording a fall of 10.8 per cent in the first quarter, experts said that companies may start opting for other alternative investment destinations such as Vietnam, Thailand, Bangladesh, and Cambodia.

While several companies with manufacturing facilities in China have already shown interest in shifting out, greenfield investments could also take a hit.

Several companies are also looking at India, which has now carved out a production-linked incentive (PLI) plan of about Rs 42,000 crore to be given over the next five years.

Nirupama Soundararajan, senior fellow & head of research, Pahle India Foundation, said that investments in China is likely to fall further. "Mostly this is a planned response, in the wake of the overall situation," she told IN.

According to a report by Nordea, the number of greenfield projects in China reduced from 871 in 2018 to 835 in 2019.


Investments from European Union have witnessed a huge drop though FDI from Asean countries and those along the Belt and Road project have gone up.

Notwithstanding the cost advantage China offers, it is not able to attract investment. The fact that China is drawing global ire for its geopolitical and military aggression, diversification and de-risking have emerged as the new mantra in the investing community to ensure that supply chains are not impacted easily. Besides, several other Asian countries have started offering huge incentives to companies wishing to set up factories.

As the US-China trade war intensified last year, followed with the outbreak of China virus, technology giants including Apple, Google and Microsoft had already evinced interest to shift their production facilities out of China.


Earlier, US President Donald Trump and Japan Prime Minister Shinzo Abe openly asked American and Japanese companies operating out of China to shift their manufacturing facilities back to their respective countries. While experts admitted that shifting factories will not be easy and the exercise may take a long time, they said that companies are now more aware of the drawbacks of having “all eggs in one basket.”

South Korean major Samsung last year closed its last factory in Huizhou that manufactured mobile phones. The company has been expanding its production capacity in countries like India and Vietnam due to the lower cost of manufacturing there.

In 2019, China, ranked 31st in the list of 190 countries in the World Bank’s Ease of Doing Business index, was the world's second largest FDI recipient after the US..