As China looks to mitigate the impact of the COVID-19 pandemic, slowing global demand, geo-economic shocks, and fierce competition from the likes of Vietnam and India over the past three years, the idea of widening and making opening-up more effective has gathered steam during the two sessions this year. National legislators and political advisers, particularly those who are economists, mayors, executives at multinationals and members of private and State-owned enterprises, believe that higher levels of overseas investment are likely as China’s economy recovers.
Delegates have spent more time discussing this topic this year, pointing out that without orders, export-oriented companies will lose revenue, and thus will not be able to invest in research and development, leading their businesses to dead ends. As a result, experts have repeatedly said that strengthening efforts to expand high-level opening-up will create a more enabling environment for trade and investment. Optimized COVID-19 controls will help curb surging global inflation, as the normalization of economic activities will stabilize supply chains and allow them to function more effectively.
While China’s labor cost advantage is shrinking, many deputies acknowledge that this doesn’t necessarily mean it has become more expensive to innovate and manufacture there. Compared with other emerging market countries, China still has clear advantages in technological progress, economic scale, and industrial agglomeration, which means that if Chinese companies are excluded from the supply chain, there is no space for substantial reduction in the overall cost of manufacturing for businesses around the world.
China may lose its comparative advantage in terms of certain products or industries due to the accelerated restructuring of the global value chain, but as a whole, its production capacity and consumption potential are still hugely attractive to multinational companies. Additionally, raising more money to rebuild supply chains outside China is both unwise and costly, as China’s infrastructure for foreign trade is mature and has been tested by time.
According to the Government Work Report, China will make further efforts to attract more foreign investment this year, including expanding market access, opening up the modern services sector, ensuring that foreign companies enjoy the same treatment as domestic ones, improving services for foreign-funded companies, and facilitating the launch of landmark foreign-funded projects. Although China’s high-energy consumption and carbon-intensive businesses may be affected by industrial upgrading or external challenges, its fast-growing service sector, green technology, and industrial and financial markets will help ease the pressure during transformation.