I. Initial Stage (Around 1978, the Beginning of Reform and Opening Up)

Background

In the early stages of reform and opening – up, China primarily relied on loans from the former Soviet Union. As reform progressed, China urgently needed to attract foreign capital.

Policies and Measures

Economic special zones were opened up, offering tax exemptions and other preferential policies for pilot projects.

Joint venture business models were introduced, allowing foreign investors to share profits and risks with Chinese partners.

Challenges Faced

At that time, the Chinese market environment was not yet mature, with low technological levels and a lack of market systems.

Foreign companies were cautious when entering China, and early investments were mainly from compatriots in Hong Kong, Macao, and overseas Chinese.

Key Case

– In 1985, Volkswagen of Germany partnered with China to establish “Shanghai Volkswagen,” becoming a pioneer in the passenger car field. The compensation trade model was adopted to address the shortage of foreign exchange, facilitating the initial entry of foreign investment.

– Outsourcing processing model: The most concentrated way of foreign investment at that time was outsourcing processing, assembly, and sample-based processing, mainly through compensation trade.

II. Rapid Development Stage (1992–2001)

Foreign Investment Introduction

In 1992, Foreign Direct Investment (FDI) replaced loans as the primary method of attracting foreign capital. China became the largest recipient of foreign investment at that time.

Market Opening

– After China joined the WTO, the market was fully opened, and cooperation models further evolved.

– Foreign companies were allowed to set up wholly-owned enterprises, although most still chose joint ventures to gain market experience.

– Foreign investment mainly flowed into the manufacturing sector, such as electrical appliances, food, and clothing. China gradually developed its own production lines.

– Between 1992 and 2001, China’s exports increased 26 times, with foreign investment driving the development of the domestic manufacturing industry.

World Factory

China thus became the world’s factory. International giants such as Siemens, General Electric, and Nokia began investing in China and laying out production lines in the 1990s.

III. Market Transformation Stage (2011–2020)

Enhanced Economic Strength

As China’s economic strength grew, labor costs increased, and the country gradually shifted from being the world’s factory to the world’s market.

Foreign investors began to focus on the huge potential of the Chinese market, with investments in the tertiary sector gradually surpassing those in the secondary sector. In 2020, the proportion of foreign investment in manufacturing to services reached 75:25.

Policy Adaptation and Investment Structure Changes

– The government introduced new foreign investment access management measures, reducing restrictions in industries such as finance and automobiles.

– Foreign investment gradually shifted from manufacturing to service and high-tech sectors. China also raised its requirements for incoming foreign investment.

Key Cases

– In 2018, Tesla established a wholly-owned factory in Shanghai, signing a performance-based agreement, which drove the upgrading of the industrial chain.

– In 2019, foreign banks such as UBS and JPMorgan entered the Chinese market in a wholly-owned form.

IV. Recent Adjustments (2021–2023)

Investment Growth and Challenges

By 2021, foreign investment in China had surpassed one trillion yuan. However, in 2023, there was a double-digit decline, including withdrawals by some dollar funds, LinkedIn, Airbnb, and automotive companies, sparking widespread discussion.

Global Investment Trends

– Global liquidity was contracting, with overall global FDI decreasing by 12%. The reduction in foreign inflows was a normal part of the structural adjustment process.

– With rising labor costs in China, foreign companies shifted to Southeast Asia, where costs were lower.

High-Tech Transformation

Foreign investment in high-tech and high value-added areas, such as intelligent manufacturing and new energy, gradually increased.

Many joint-venture automotive companies continued to increase their investment in intelligent manufacturing, including R&D and production lines in China.

Conclusion

The development history of foreign capital in China over the past more than 40 years has witnessed a transformation from labor – intensive industries in the early stage to technology – and market – oriented industries. Foreign capital has not only promoted the maturity of China’s manufacturing industry but also fostered market competition. With the continuous changes in the Chinese market, foreign – invested enterprises are also constantly adjusting their strategies to adapt to the new market environment. Overall, the interaction between foreign capital and the market is a continuous process of game and balance.