China is now widely opening its doors to foreign businesses in a decisive shift from its zero-COVID policy. The latest reform is part of a massive "modernization project", a term central to the Chinese government's strategy. The target year is 2029, which will mark the 80th anniversary of the founding of the People's Republic of China. Here's an in-depth look.
Boosting growth through foreign businesses
In March 2024, the International Monetary Fund (IMF) called on China to reform its economic market to rejuvenate its economy. At that time, the country was facing an unprecedented housing crisis and high youth unemployment (both issues are still relevant today). Moreover, foreign businesses have not returned to China in large numbers. In February 2024, the government released figures showing that direct foreign investments in 2023 were just 33 billion dollars— the lowest since 1993. In contrast, in 2021, despite a health crisis that disrupted economies, foreign investments in China had reached 350 billion dollars.
1993 was the year when China began its series of reforms to open up internationally. 2024 marks the year when the country started new reforms to boost its economy after initially ignoring calls from the IMF. Justifying its new stance, the Chinese Communist Party (CCP) gathered for the third plenary session of its 20th Central Committee (from July 15 to 18, 2024), first reminding everyone of its robust economic health. This year, it aims for 5% growth, although the World Bank predicts a slowdown from 5.2% to 4.5%.
The CCP's "comprehensive plan" for reform highlights several goals: to create a more favorable international environment for "Chinese modernization," strengthen partnerships with "external enterprises," better manage foreign investments, facilitate international trade, promote "strategic partnerships" with other powers, and build an "open global economy."
Chinese market and opportunities for foreign businesses
The 2024 Companies Law is indicative of China's vast reform plan. Approved in December 2023 and effective from July 1, 2024, this law overshadows other provisions concerning companies and becomes the reference text. It aims to facilitate business transactions (including for foreign companies), simplify administrative procedures, protect investors' rights and interests, and improve governance rules. China wants to send a strong message to foreign companies: it is responsive to rapid market developments and can offer foreign firms a favorable environment for their growth.
The software company NielsenIQ got the message. Tracey Massey, its COO, says that China is one of the most "strategic" markets. According to her, the reforms contribute to the growth of foreign companies in China and to Chinese growth worldwide. Having been in the Chinese market for 40 years, NielsenIQ claims to have contributed to the success of most Fortune Global 500 companies.
Wuxi, a city near Shanghai, is one of the symbols of Chinese ambition. According to official figures, Wuxi is home to more than 7,200 foreign companies. More than 200 are supported by Fortune Global 500 listed companies. More than just a showcase, Wuxi represents China's effort to open up internationally. In May, Belgian company Barco (entertainment, health) opened facilities in Wuxi. In February, Bridgestone set up shop in Wuxi, a few months after Schneider Electric (arrived in November 2023) and Panasonic (arrived in July 2023). AstraZeneca and Saudi green energy leader Envision Group are also turning to Wuxi.
Can China expect a massive return of foreign workers?
According to the Chinese Ministry of Commerce, 7,160 foreign-funded enterprises were established between January and February 2024. This is 34.9% more than the previous year and the highest level recorded since the pandemic began. According to a report by the German Chamber of Commerce in China published in January, 90% of surveyed German companies plan to continue their business in China. Over half of them intend to increase their investments in China within the next two years.
More than 5,000 German companies are currently based in China, not to mention French (over 2,100), American (8,619), and Japanese companies (over 13,700). Foreign companies are no longer targeting only large cities but also medium and small cities to take full advantage of the Chinese market.
For foreign professionals, the reforms undertaken by China can represent new opportunities. Many left the country, frustrated by the zero-COVID policy. Since then, restrictions have been lifted, but foreign workers are still struggling to return. Although China has relaxed its visa policy, promised tax relief for foreign investors, and issued invitations to international students, the results are not so promising. In 2023, a European Chamber of Commerce survey in China revealed that foreign workers accounted for only 10% of the employees in most foreign companies in China. 2024 started with the same trend. Foreign employers are increasingly turning to locals, which is precisely one of the government's strategies.
China's reforms should be handled with caution
However, for foreign firms, the shortage of foreign workers can hinder their growth. Since these workers link the foreign company's headquarters with the firm based in China, their presence is crucial for understanding the Chinese market and adapting the strategies of foreign companies. As they await the return of expatriates, foreign employers are counting the costs. Some feel that the government's efforts are not enough, while others call for caution. China recently made the news headlines for strengthening the anti-espionage law that infringes on fundamental freedoms and prevents the conclusion of otherwise legal deals, raids, and closures of foreign companies without clear reasons.
Ultimately, foreign companies are divided. On one hand, the Chinese market offers real opportunities for growth. On the other hand, it represents intensified competition, as in the case of electric vehicles. According to the International Energy Agency, 45% of electric cars produced this year will be Chinese. China outperforms Europe (25%) and its major American rival (11%). The traditional automobile industry leaders (Germany, Japan, and the United States) are not calling for massive investments in China (the country does not need them) but for protectionist measures to curb Chinese expansion.
Meanwhile, Beijing continues its modernization policy. Its reform to attract foreign capital is part of a package of 300 "capital" measures. The CCP asserts that all will be completed by the 80th anniversary of the founding of the People's Republic of China.
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