The retreat of Korean-funded enterprises and the escaping from the Pearl River Delta of Hong Kong and Taiwan companies... The report on the withdrawal of foreign-funded enterprises from the Chinese market has been warming up recently, which has also led to speculations about the future prospects of foreign companies investing in China. In fact, the evacuation of some foreign companies is only a partial or temporary change in China's foreign investment territory, which reflects the actual background of the continuous improvement of the quality of China's foreign investment and the optimistic expectation that foreign capital may accelerate optimization in China.
The Withdrawal of Foreign Enterprises: The Inevitable Effect of Cost Promotion
According to the data, there were 244 foreign-invested enterprises evacuated in Guangdong Province in 2007. At the same time, surveys show that 33,000 percent of the 80,000 Hong Kong and Taiwanese companies in the Pearl River Delta are planning to relocate. Coincidentally, there are currently 103 South Korean-owned enterprises “without evading†Shandong for no reason. The new trend of foreign companies has attracted the attention of the Chinese government and ordinary people.
The nature of capital is profit-seeking, just as foreign capital inflows to China mainly used China’s cost advantage to make profits. When the cost of the Chinese market changes and then erodes the profits of foreign companies, the choice to withdraw becomes foreign capital. The most primitive business impulse.
??labor cost. The "Labor Contract Law" implemented from January 1 this year not only raises the wage standards for employees of enterprises, but also imposes mandatory standards on benefits for employees. Since most of the foreign-funded enterprises in China are labor-intensive processing plants, the new costs can be imagined.
Tax costs. The new “Two-in-one†new government that was implemented this year has abolished the preferential tax rate enjoyed by foreign-funded enterprises (an average of 13%), and turned into the same average tax rate (about 30%) as domestic-funded enterprises, thus reducing the profitability of foreign companies. . At the same time, the export tax rebate has been reduced from the original 17% to the current 13%, and it will be lowered again to 5% in May this year. Since about 50% of foreign-funded enterprises’ products are sold back to the parent company or exported overseas, the reduction in export tax rebates directly reduces their profits.
?? RMB appreciation costs. The cumulative increase in the RMB since the exchange rate reform has reached 13.31%. The year-on-year increase of 6.9% in 2007 and the increase since 2008 have also exceeded 2%. In the context of the rapid appreciation of the renminbi, many foreign companies had to hedge their product prices in advance, and their market bargaining power was inhibited.
Expansion costs. On the one hand, as the most important weapon for local governments to attract foreign investment, land has been rigidly constrained at the macro level, and industrial land has been restrained. On the other hand, environmental protection requirements have become an important indicator for evaluating companies. For those foreign companies relying on processing of imported materials, the risks that the expansion of production may bear are greatly enhanced.
We need to make an objective judgment as to the effect of cost changes on promoting the withdrawal of foreign companies from China. First of all, the gradient transfer of labor-intensive industries, that is, migration to places with low labor costs, tax incentives, and loose environmental standards is an inevitable law. For China, there is absolutely no need to sacrifice the labor, land resources, and environmental factors to retain foreign capital that is profitable, but for those high-quality foreign companies that continue to stay in China to increase protection and support. Second, we must distinguish between transnational transfer and transregional transfer. The transnational transfer of non-state-owned policies can dictate, and the transfer of foreign companies between different regions in the country can be guided by effective policies. This transfer trend is conducive to the re-division of regional economies and the rational adjustment of industrial structure. Again, we must distinguish between adaptive transfer and expansive transfer. For foreign companies that are adapting to cost or environmental protection standards, macroeconomic policies can hardly be forced, and policies should not be limited to those that leave R&D links in China but transfer production links to other countries. Appropriate encouragement should be given. Finally, it should be emphasized that as the transfer of labor-intensive industries may lead to hollowing of the industry and increase the flow of unemployment, the pace and pace of advancement of foreign capital should be well understood.
Foreign companies choose: quantity to quality conversion
Data from the National Bureau of Statistics of China shows that in 2007, China absorbed 74.8 billion U.S. dollars in foreign direct investment (FDI), an increase of 13.6% year-on-year. According to the latest statistics from the Ministry of Commerce, in January 2008 alone, China actually used 11.2 billion U.S. dollars of foreign capital, a year-on-year increase of 109%. However, while the volume of capital inflows has increased, the number of newly established foreign companies has decreased. In 2007, 37,888 new foreign-invested enterprises were established in China, a year-on-year decrease of 8.69%. In January of this year, 2,918 foreign-funded enterprises were newly established, a year-on-year decrease of 13.41%. The objective data of one increase and one decrease represent the change in the direction of China's introduction of foreign capital, and it also reflects the adjustment of foreign companies in the Chinese market.
In the past, China, which had a shortage of capital, had introduced foreign capital for a long period of time using cheap production factors (land, labor) as chips, even at the expense of environmental resources. Although this “market-for-capital-based†approach has allowed foreign companies to rush in and drove industrial expansion, it has also allowed China to taste the bleak future of arable land and air pollution. Based on the optimization of China's industrial structure and the improvement of its sustainable development capability, China's foreign investment policy has undergone a fundamental adjustment, that is, the shift from quantity-based to quality-based. According to the newly released “Foreign Investment Industry Guidance Catalog†by the Chinese Ministry of Commerce, foreign companies will no longer be encouraged to enter traditional manufacturing and export-oriented fields.
The shift in policy will inevitably lead to the re-adjustment of foreign companies in the Chinese market: First, the industrial choices will be shifted to the high-end sectors of the manufacturing industry and innovation fields, such as electrical and electronics, semiconductors, and computer equipment, will be favored by foreign investors, while foreign companies will have high-tech, Investment in energy-saving and environmental protection industries will increase substantially. Second, the center of gravity of the activity will shift from a special economic zone to a broader economic zone, that is, subject to the constraints of the eastern coastal resources and the improvement of the business environment in other regions. The vast majority of foreign companies will complete the re-division of their industries in China. The R&D center stays in the eastern region and shifts production and processing links to the lower-cost Midwest. Third, capital expansion is completed by M&A. Eighty percent of MNCs' foreign investment is realized through mergers and acquisitions. At present, however, foreign companies’ annual M&A contracts in China account for only 2.5% of all foreign investment in China during the same period. However, a large number of restructuring of state-owned enterprises and the expansion of private enterprises have provided abundant room for foreign companies to enter the Chinese market and expand capital. Therefore, in the future, foreign companies will no longer invest in greenfield investment and construction in China.
Obviously, the self-reformation of the above three aspects is not a general meaning of foreign investment. Only those multinational companies with strong capital and technical strength can keep up with the Chinese government's rhythm. In this sense, the reduction in the number of foreign-invested enterprises introduced by China or the withdrawal of some foreign companies is precisely the result of the interaction between policy levers and foreign investment choices.
Foreign Firm Expansion: Increasingly Improved Chinese Opportunities
From the current point of view, foreign companies that have flowed out of China have finally entered Asian countries such as India and Indonesia. However, this way of switching foreign capital is not enough to show that the Chinese market has lost its appeal. On the one hand, compared with Asian countries, China’s human capital still has a comparative advantage. In the field of technicians such as engineers, average wages in cities such as Shanghai, Guangzhou, and Hangzhou in China are lower than those in Indonesia, Malaysia, Thailand, the Philippines, and India; at the managerial level of managers, average wages in major cities in China are higher than those in other countries. Singapore, South Korea and other places. On the other hand, Asian countries have an average foreign tax rate of about 30%, which is basically higher than China or at least the same as China's tax rate, and China still maintains the original tax rate of 15% for high-tech companies.
It is worth emphasizing that with the simplification of China’s investment approval process and the transformation of government functions, the foreign investment in China’s government environment will be fundamentally changed, and the institutional environment for foreign companies’ survival in China is also improving. According to the latest news, the Chinese government has allowed eligible foreign-invested companies to issue A-shares and issue corporate bonds denominated in RMB based on the issuance of A-shares. This move provides foreign companies with a smooth channel for financing on a larger scale in China.
The Withdrawal of Foreign Enterprises: The Inevitable Effect of Cost Promotion
According to the data, there were 244 foreign-invested enterprises evacuated in Guangdong Province in 2007. At the same time, surveys show that 33,000 percent of the 80,000 Hong Kong and Taiwanese companies in the Pearl River Delta are planning to relocate. Coincidentally, there are currently 103 South Korean-owned enterprises “without evading†Shandong for no reason. The new trend of foreign companies has attracted the attention of the Chinese government and ordinary people.
The nature of capital is profit-seeking, just as foreign capital inflows to China mainly used China’s cost advantage to make profits. When the cost of the Chinese market changes and then erodes the profits of foreign companies, the choice to withdraw becomes foreign capital. The most primitive business impulse.
??labor cost. The "Labor Contract Law" implemented from January 1 this year not only raises the wage standards for employees of enterprises, but also imposes mandatory standards on benefits for employees. Since most of the foreign-funded enterprises in China are labor-intensive processing plants, the new costs can be imagined.
Tax costs. The new “Two-in-one†new government that was implemented this year has abolished the preferential tax rate enjoyed by foreign-funded enterprises (an average of 13%), and turned into the same average tax rate (about 30%) as domestic-funded enterprises, thus reducing the profitability of foreign companies. . At the same time, the export tax rebate has been reduced from the original 17% to the current 13%, and it will be lowered again to 5% in May this year. Since about 50% of foreign-funded enterprises’ products are sold back to the parent company or exported overseas, the reduction in export tax rebates directly reduces their profits.
?? RMB appreciation costs. The cumulative increase in the RMB since the exchange rate reform has reached 13.31%. The year-on-year increase of 6.9% in 2007 and the increase since 2008 have also exceeded 2%. In the context of the rapid appreciation of the renminbi, many foreign companies had to hedge their product prices in advance, and their market bargaining power was inhibited.
Expansion costs. On the one hand, as the most important weapon for local governments to attract foreign investment, land has been rigidly constrained at the macro level, and industrial land has been restrained. On the other hand, environmental protection requirements have become an important indicator for evaluating companies. For those foreign companies relying on processing of imported materials, the risks that the expansion of production may bear are greatly enhanced.
We need to make an objective judgment as to the effect of cost changes on promoting the withdrawal of foreign companies from China. First of all, the gradient transfer of labor-intensive industries, that is, migration to places with low labor costs, tax incentives, and loose environmental standards is an inevitable law. For China, there is absolutely no need to sacrifice the labor, land resources, and environmental factors to retain foreign capital that is profitable, but for those high-quality foreign companies that continue to stay in China to increase protection and support. Second, we must distinguish between transnational transfer and transregional transfer. The transnational transfer of non-state-owned policies can dictate, and the transfer of foreign companies between different regions in the country can be guided by effective policies. This transfer trend is conducive to the re-division of regional economies and the rational adjustment of industrial structure. Again, we must distinguish between adaptive transfer and expansive transfer. For foreign companies that are adapting to cost or environmental protection standards, macroeconomic policies can hardly be forced, and policies should not be limited to those that leave R&D links in China but transfer production links to other countries. Appropriate encouragement should be given. Finally, it should be emphasized that as the transfer of labor-intensive industries may lead to hollowing of the industry and increase the flow of unemployment, the pace and pace of advancement of foreign capital should be well understood.
Foreign companies choose: quantity to quality conversion
Data from the National Bureau of Statistics of China shows that in 2007, China absorbed 74.8 billion U.S. dollars in foreign direct investment (FDI), an increase of 13.6% year-on-year. According to the latest statistics from the Ministry of Commerce, in January 2008 alone, China actually used 11.2 billion U.S. dollars of foreign capital, a year-on-year increase of 109%. However, while the volume of capital inflows has increased, the number of newly established foreign companies has decreased. In 2007, 37,888 new foreign-invested enterprises were established in China, a year-on-year decrease of 8.69%. In January of this year, 2,918 foreign-funded enterprises were newly established, a year-on-year decrease of 13.41%. The objective data of one increase and one decrease represent the change in the direction of China's introduction of foreign capital, and it also reflects the adjustment of foreign companies in the Chinese market.
In the past, China, which had a shortage of capital, had introduced foreign capital for a long period of time using cheap production factors (land, labor) as chips, even at the expense of environmental resources. Although this “market-for-capital-based†approach has allowed foreign companies to rush in and drove industrial expansion, it has also allowed China to taste the bleak future of arable land and air pollution. Based on the optimization of China's industrial structure and the improvement of its sustainable development capability, China's foreign investment policy has undergone a fundamental adjustment, that is, the shift from quantity-based to quality-based. According to the newly released “Foreign Investment Industry Guidance Catalog†by the Chinese Ministry of Commerce, foreign companies will no longer be encouraged to enter traditional manufacturing and export-oriented fields.
The shift in policy will inevitably lead to the re-adjustment of foreign companies in the Chinese market: First, the industrial choices will be shifted to the high-end sectors of the manufacturing industry and innovation fields, such as electrical and electronics, semiconductors, and computer equipment, will be favored by foreign investors, while foreign companies will have high-tech, Investment in energy-saving and environmental protection industries will increase substantially. Second, the center of gravity of the activity will shift from a special economic zone to a broader economic zone, that is, subject to the constraints of the eastern coastal resources and the improvement of the business environment in other regions. The vast majority of foreign companies will complete the re-division of their industries in China. The R&D center stays in the eastern region and shifts production and processing links to the lower-cost Midwest. Third, capital expansion is completed by M&A. Eighty percent of MNCs' foreign investment is realized through mergers and acquisitions. At present, however, foreign companies’ annual M&A contracts in China account for only 2.5% of all foreign investment in China during the same period. However, a large number of restructuring of state-owned enterprises and the expansion of private enterprises have provided abundant room for foreign companies to enter the Chinese market and expand capital. Therefore, in the future, foreign companies will no longer invest in greenfield investment and construction in China.
Obviously, the self-reformation of the above three aspects is not a general meaning of foreign investment. Only those multinational companies with strong capital and technical strength can keep up with the Chinese government's rhythm. In this sense, the reduction in the number of foreign-invested enterprises introduced by China or the withdrawal of some foreign companies is precisely the result of the interaction between policy levers and foreign investment choices.
Foreign Firm Expansion: Increasingly Improved Chinese Opportunities
From the current point of view, foreign companies that have flowed out of China have finally entered Asian countries such as India and Indonesia. However, this way of switching foreign capital is not enough to show that the Chinese market has lost its appeal. On the one hand, compared with Asian countries, China’s human capital still has a comparative advantage. In the field of technicians such as engineers, average wages in cities such as Shanghai, Guangzhou, and Hangzhou in China are lower than those in Indonesia, Malaysia, Thailand, the Philippines, and India; at the managerial level of managers, average wages in major cities in China are higher than those in other countries. Singapore, South Korea and other places. On the other hand, Asian countries have an average foreign tax rate of about 30%, which is basically higher than China or at least the same as China's tax rate, and China still maintains the original tax rate of 15% for high-tech companies.
It is worth emphasizing that with the simplification of China’s investment approval process and the transformation of government functions, the foreign investment in China’s government environment will be fundamentally changed, and the institutional environment for foreign companies’ survival in China is also improving. According to the latest news, the Chinese government has allowed eligible foreign-invested companies to issue A-shares and issue corporate bonds denominated in RMB based on the issuance of A-shares. This move provides foreign companies with a smooth channel for financing on a larger scale in China.
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