At a time when foreign capital outflows from China have reached historic highs and international trade uncertainties are rising, Chinese President Xi recently met with more than 40 foreign business executives, reiterating China's commitment to further expanding its openness and stating. In fact, as a key hub for global manufacturing, China's ability to attract foreign investment directly reflects the vitality and competitiveness of its market. Foreign capital not only represents international confidence in the Chinese economy but also highlights the country's significant position in the global industrial chain.
According to data from the Chinese Ministry of Commerce, from January to February 2025, 7,574 new foreign-invested enterprises were established nationwide, a 5.8% year-on-year increase. However, the actual foreign investment amount was RMB 171.21 billion, a 20.4% decrease compared to the previous year. The Ministry has not released foreign investment data in U.S. dollars. In terms of industry, the manufacturing sector saw RMB 47.82 billion in actual foreign investment, while the service sector received RMB 120.49 billion, and the high-tech industry attracted RMB 52.49 billion. Among these, foreign investment in e-commerce services, biopharmaceutical manufacturing, and smart consumer electronics manufacturing grew by 33.5%, 22.9%, and 40.7%, respectively. In terms of source countries, actual investments from the UK, Germany, and South Korea to China increased by 87.9%, 54.7%, and 45.2%, respectively, which includes data from free port investments.
The data above shows that the actual foreign investment utilized in China in the first two months of this year has decreased year-on-year, and compared to previous years, the decline in foreign investment remains significant. However, given the increasingly complex environment both internationally and within China, the difficulties and challenges faced by foreign investment may be far more intricate than what the data alone suggests.
ANBOUND has always adhered to the "Big Fieldwork" research approach. Through close communication with various levels of government, private enterprises, and foreign-invested companies, our researchers have gained a deeper understanding of the actual state of foreign investment operations and development in China. Currently, foreign investment attitudes towards the Chinese market are showing diverse and continuously changing characteristics. This requires Chinese policymakers to examine the situation with an objective and clear perspective, identifying issues and proposing practical improvement measures.
In the context of a complex and ever-changing international environment and China's own economic transformation, while some foreign enterprises remain optimistic about the future of the Chinese market, they also face numerous doubts and uncertainties. According to the systematic observations of ANBOUND's researchers, the mindset of foreign companies in China can be broadly categorized into four types. These types are interrelated yet distinct.
Firstly, there is a contradictory mindset. For foreign enterprises with significant investments in China and years of operation, the Chinese market is undoubtedly a key part of their global strategic layout. Over the years, these companies have relied on the business benefits gained in China and remain confident about the future market potential. However, with the increasingly tense geopolitical situation and the complex and volatile international environment, they are also concerned about the uncertainties and risks China may face in terms of policy openness and international cooperation in the future. Specifically, on one hand, these enterprises are optimistic about China's vast market prospects, consumption potential, and industrial upgrading. On the other hand, due to concerns about policy adjustments and the possible rise of market protectionism driven by fluctuations in the international situation, they are hesitant to further increase their investments in China. This contradictory mindset directly affects their strategic decisions in China, causing some companies to hesitate between opportunities and risks and find it difficult to make clear long-term plans.
Secondly, there is a widespread sense of doubt and concern. This mindset is not limited to companies of any particular size; both large multinational corporations and small to medium-sized foreign enterprises have expressed varying degrees of skepticism in their actual operations. Foreign enterprises generally focus on and question several issues. First, they wonder whether China's foreign investment policies can remain stable and coherent. With the continuous introduction of policies encouraging independent innovation and domestic substitution, as well as the promotion of a new national system, these foreign enterprises worry that they may face disadvantages in terms of market access and fair competition. In addition, some enterprises question whether China aims to secure the top achievements in all sectors, which could place foreign enterprises at a competitive disadvantage. Then, some companies have pointed out that while China's leaders and relevant central documents emphasize pro-foreign-investment policies, there seems to be a discrepancy between this messaging and the actual policy implementation they experience on the ground. Furthermore, in relation to the government's emphasis on the "domestic circulation" strategy, foreign enterprises are concerned whether this implies that China will gradually close its market to foreign investment. Finally, whether different standards will be set in government procurement and service areas, potentially creating hidden barriers, is another key concern for foreign enterprises. In summary, these doubts and concerns indicate that foreign enterprises have not received sufficiently clear guidance on many critical policy issues, which makes them more cautious in their investment decisions and market strategies.
The third mindset is a typical risk-averse attitude. As China's international geopolitical situation continues to deteriorate and the Chinese government's countermeasures against certain countries, especially the United States, become more evident, foreign enterprises have seen a significant increase in the potential risks of investing in China. In response to this rising risk, some of them have begun proactively adjusting their global strategic layouts. A common approach is the "China+1" strategy, where companies continue their operations in China but also increase investments in other countries and regions, creating a more diversified and flexible global supply chain system. Additionally, some companies have explicitly stated that they are developing investment arrangements for the Chinese market that are independent of other markets, intending to create a clear distinction from other regions so that they can more easily isolate and mitigate risks if they actually materialize. At the same time, the ongoing introduction of new regulatory measures in areas such as digital security and national security, combined with the gradual strengthening of counter-sanctions, has made some foreign enterprises more cautious in their risk assessments. As a result, they tend to adopt a more risk-averse approach in their strategies.
The fourth mindset is the "doing the bare minimum to get by" attitude, which has become increasingly apparent in recent years. This mindset is characterized by a noticeable decline in foreign-invested enterprises' enthusiasm for the Chinese market. Some companies no longer actively expand their market presence or strive for more orders as they did in the past, instead adopting a "go with the flow" attitude. In the past, foreign enterprises were an active force in the Chinese market, proactively learning about policies and regulations, constantly broadening market access channels, and striving to expand their market share in a highly competitive environment. However, in recent years, with increasing external uncertainties and rising internal management risks, some foreign enterprises have chosen to slow down their investment pace in China. Even when facing policy adjustments, they take a "proceed if the policy permits; withdraw if any issues arise" approach. Some companies have even focused solely on the "red lines" in policies, avoiding sensitive issues, and adopting a passive, wait-and-see strategy for business development. This is an indication that these enterprises lack confidence in the current market environment. It not only reflects their disappointment with policy signals but also indicates that, due to environmental uncertainties, foreign investments may gradually withdraw from the Chinese market in the future.
Overall, based on the four mindsets described above, it is evident that negative emotions dominate among foreign-invested enterprises in China. In particular, the rise of the passive, doing the bare minimum attitude mentioned above has become a very common phenomenon among these companies. In the past, foreign enterprises were not only active participants in the Chinese market but also crucial drivers of policy implementation and market vitality. However, now, with the accumulation of doubts, concerns, and risk-averse attitudes, these companies have shown varying degrees of decline in both their attention to and investment in the Chinese market. If foreign enterprises maintain this negative mindset in the long term, it will not only affect the dynamism of the Chinese market in the short term but may also pose a risk of large-scale capital outflows and investment withdrawals in the medium to long term.
A senior researcher at ANBOUND believes that there is a divergence between how foreign investors view the Chinese market and how the Chinese government perceives it. Foreign investors believe that the Chinese government exercises very strict control over the market, and they also believe the government is highly confident in this control. However, foreign investors do not think that this control is conducive to the prosperity and expansion of the Chinese market. In fact, the fundamental point of divergence between China and foreign investors lies in their differing views on the market's prosperity and future. If this fundamental disagreement is not addressed, the prospects for foreign investment in China will not improve effectively, and foreign investors' attitudes towards the Chinese market will likely remain unchanged, making improvement difficult. Therefore, in the current situation, to firmly maintain foreign investor confidence and ensure they remain in China, all levels of government must adopt decisive and effective measures. Specifically, we believe that adjustments can be made in four key areas.
Firstly, at the top-level design, it is crucial to clearly communicate China's commitment to its reform and opening-up strategy. The Chinese government will need to consistently emphasize its support for foreign enterprises and private enterprises. In fact, some foreign companies have pointed out that they often assess foreign investment policies and the overall business environment based on the government's attitude toward private enterprises. In other words, the way the government treats private enterprises often signals its policies toward foreign investment. Secondly, it is necessary to maintain a stable and sustainable policy environment, consistently supporting and encouraging foreign investment. This stability not only helps create a favorable market atmosphere but also serves as an important safeguard for attracting and retaining foreign capital. Thirdly, government leadership and relevant departments need to strengthen proactive communication with foreign enterprises. For example, some Japanese companies in China have indicated that if senior Chinese officials were to visit Japan and engage directly with the headquarters of Japanese companies, it would be much more effective than relying solely on lobbying and feedback from foreign enterprises in China. Such face-to-face communication can better address the concerns of foreign companies and build mutual trust. Finally, when formulating policies, China should adopt a global strategy and long-term thinking, focusing on long-term cooperation and win-win outcomes with neighboring countries and global markets. Only by looking ahead can China provide foreign enterprises with an environment that is both open and stable, thus strengthening their confidence in the Chinese market.
Final analysis conclusion:
Overall, the mindset of foreign enterprises in China is filled with contradictions. On one hand, they remain optimistic about China's vast market and opportunities for industrial upgrading. On the other hand, global fluctuations, policy uncertainties, and the strict control exerted by the Chinese government have caused them to cautiously adjust their strategies, with some even choosing a passive approach. Therefore, China needs to convey clear signals of stability, enhance communication with foreign enterprises, and reaffirm its commitment to reform and opening-up. By creating an open, transparent, and mutually beneficial long-term development environment, China can effectively counter the "decoupling" and "disconnection" from the global economy. This is the best response to foreign concerns and a way to secure foreign capital's continuous engagement with China.
______________
Yang Xite is a Research Fellow at ANBOUND, an independent think tank.
