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Though Chinese fears over the health of the economy of the United States — which purchases a significant portion of Chinese export goods — have simmered for months, foreign direct investment (FDI) in China continues to rise.
According to China’s Ministry of Commerce (MOC), $35 billion in FDI was used in China from January to April, nearly 60 percent higher than during the same period in 2007. Still, the number of newly approved foreign-funded enterprises took a slight dip, falling by 23 percent year-on-year to 9,490 for the same period. The government has cited a stricter approval process for foreign-funded enterprises as the main reason for the decline, but other reasons exist (for example, the average value of FDI used per enterprise could be higher).
Stratfor has received a series of anecdotal reports signaling increasing nervousness on the part of foreign business interests investing in, and suppliers buying from, China. Sources confirm that foreign investors have begun shifting investments outside China, increasingly diversifying their new production facilities to alternative countries such as Vietnam, Thailand and Mexico. While some investors are contemplating relocating their primary manufacturing facilities to these alternatives to China one day, a significant number are simply testing the waters in other non-China destinations so as not to be left behind. As one source put it, “the general feeling is if you are still only in China you are behind … [the] first guy who can get cheaper prices in, let’s say, Vietnam, wins.”
From a geopolitical perspective, even a mere marginal uptick in the number of foreign-owned factories shutting down — let alone a major exodus of foreign capital — can have far-reaching repercussions for the country’s internal social stability. The fierce reaction that an unannounced South Korean factory closure sparked in China earlier this year illustrated this reality.
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