Figures from the Ministry of Foreign Trade and Economic Co-operation (Moftec) indicate a strong recovery in foreign direct investment (FDI) in 2001, apparently buoyed by China’s progress towards WTO membership. Realised FDI in 2000 was virtually unchanged from a year earlier, so the 14.9 per cent year-on-year growth in 2001 represents a dramatic rebound – some of it at the expense of other developing countries.
The pattern of FDI in China is continuing to shift, with multinational investors gradually gaining the upper hand over their local partners – or dispensing with them altogether. The wholly foreign-owned enterprise (WFOE) is now well established as the dominant investment vehicle for multinationals in China: 2001 appears to be the first year since the start of the reform era in which WFOE investment represented more than 50 per cent of total FDI.
Like domestic investment, however, actual FDI flows seem to have slowed towards the end of 2001. Figures for October alone show utilised FDI totalling US$5.057bn, implying year-on-year growth of just 7.16 per cent. The medium-term trend in inward investment is likely to remain weak – particularly with the recent fall in the yen, which has both reduced the purchasing power of Japanese corporations and dampened their incentive to relocate production overseas.
China comes out cheap China is the fourth-cheapest location to conduct business according to a survey of 31 countries published by the Economist Intelligence Unit. Only Hungary, Indonesia and Thailand were found to be cheaper, while Japan was the most expensive.
In terms of local labour, China is the third cheapest country after India and Indonesia. Executive labour is particularly cheap, although there are wide geographical variations and demand for local managers generally outstrips supply.
On top of wages, many joint ventures pay a single sum into a comprehensive insurance scheme administered by the labour service bureau. This amounts to about 35 per cent of wages in the south, more in the north. In addition, foreign companies may contribute as much as 25 per cent of employee salaries to a housing fund.
By contrast, expatriate costs are the fifth highest in the survey, a category comprising goods, rent and school fees. China scores well in terms of low costs for office rents, telephone calls and road and air transport. However, corruption levels are high.