Completely lifting foreign‑investment access restrictions in the manufacturing sector: a key signal of China’s high‑level opening-up.

On October 18, during his keynote address at the opening ceremony of the Third Belt and Road Forum for International Cooperation, President Xi Jinping announced that China will comprehensively lift foreign‑investment access restrictions in the manufacturing sector.

This represents another step forward, building on the near‑complete liberalization of the manufacturing sector nationwide and the elimination of all manufacturing restrictions in the negative list of the free trade pilot zones.

Nationwide, under the “Special Management Measures for Foreign Investment Access (Negative List) (2021 Edition),” only two manufacturing-related items remain: “publication printing must be controlled by Chinese investors” and “investment is prohibited in the application of processing techniques such as steaming, stir-frying, calcining, and calcination for traditional Chinese medicine decoction pieces, as well as in the production of proprietary Chinese medicines with confidential formulations.”

Within the free trade pilot zones, the “Special Management Measures for Foreign Investment Access in Free Trade Pilot Zones (Negative List) (2021 Edition),” which took effect on January 1, 2022, has completely eliminated all manufacturing-related items, reducing the total number of entries to 27—17 classified as prohibited and 10 as restricted.

Send out a key signal

To the outside world, the announcement on the 18th of a full opening-up of the manufacturing sector has sent an important signal about China’s economic transformation.

“China’s manufacturing sector has already shifted from the mid‑low end to the mid‑high end within global production, supply, and value chains. This comprehensive liberalization is good news for the world at large—and even more so for the manufacturing industry,” Wei Jianguo, Vice Chairman of the China Center for International Economic and Trade Exchange and former Vice Minister of Commerce, told Caixin. He added that the complete removal of foreign‑investment access restrictions in the manufacturing sector sends three key signals.

First, China’s rise was underpinned by manufacturing—the “backbone” of its economy—and its continued ascent toward prosperity and strength will likewise depend on this same manufacturing backbone. Second, China’s high‑level opening-up will begin with the comprehensive removal of foreign‑investment access restrictions in the manufacturing sector. Third, the future development of China’s economy will continue to hinge on the real economy—“a shift from the path once followed by major Western economies, which gradually pivoted toward services while downplaying manufacturing.” With a strong foundation and robust support in manufacturing, China must further strengthen this sector, simultaneously upgrading its service industry while stepping up efforts to modernize and elevate manufacturing—“balancing both approaches with equal vigor.”

Bai Ming, a member of the Degree Committee and a researcher at the Research Institute of the Ministry of Commerce, also told Caixin that for China to transition from a manufacturing giant to a manufacturing powerhouse, it must actively engage in economic globalization and leverage all high-quality resources available worldwide. Only in this way can the country accelerate its march toward becoming a global manufacturing leader. Moreover, the move to extend the elimination of negative-list restrictions on manufacturing—from the pilot free trade zones to the national level—represents comprehensive opening-up, underscoring China’s unwavering commitment to keeping its door of opening-up ever wider.

Since 2017, China has revised its negative list for foreign investment access for five consecutive years. The 2021 versions of the national and free trade zone negative lists have been reduced to 31 and 27 items, respectively. In numerous sectors—including agriculture, automotive and shipbuilding, aircraft manufacturing, securities, banking, insurance, and vocational training—China has either eliminated or relaxed restrictions on foreign equity ownership, thereby creating greater market opportunities for foreign investors.

Huang Feng, president of the Shanghai Foreign-Invested Enterprises Association, told Caixin that at the national level, market access for foreign investment in manufacturing had already been largely liberalized; this latest move toward full openness is more of a symbolic gesture. Against the backdrop of a sluggish global economic recovery, China faces challenges in attracting foreign capital and must continue to roll out targeted, high‑impact policies to stabilize foreign investment.

Foreign Investment Structural Adjustment

According to data from the Ministry of Commerce, in the first eight months of 2023, China’s actual utilization of foreign investment totaled RMB 847.17 billion, down 5.1% year on year. This marks the first decline in this indicator in three years.

An official from the Department of Foreign Investment of the Ministry of Commerce stated that the primary reason for the decline in actual utilized foreign investment is the slow recovery of the global economy and weak cross-border investment, compounded by a relatively high base in the same period last year, which has led to a deceleration in growth. Foreign investment is a market-driven activity, and temporary fluctuations are normal. Therefore, it is important to consider both the overall scale and the structural composition, as well as both the current situation and the long-term outlook.

Against the backdrop of year-on-year declines in foreign investment, China’s manufacturing sector attracted RMB 239.95 billion in actual utilized foreign capital during the first eight months of this year, up 6.8% year on year. In high‑tech manufacturing, actual utilized foreign capital rose by 19.7%, with the electronics and communications equipment manufacturing sector and the medical instruments and apparatus manufacturing sector expanding by 39.7% and 25.6%, respectively. Among high‑tech service industries, the research and development and design services segment saw a 57.1% increase in actual utilized foreign capital. Meanwhile, 33,154 new foreign-invested enterprises were established, a year-on-year rise of 33%.

Since the beginning of this year, many foreign investors have continued to expand and deepen their investments in China through concrete actions.

In September, DuPont of the United States broke ground on a large-scale new plant in the Yangtze River Delta, the UK‑based Halma Group opened its Asia‑Pacific integrated production and R&D hub in Shanghai, and the chemical giant Solvay announced the completion of the expansion of its China Research and Innovation Center.

In August, several new Covestro plants in Shanghai began operations one after another, while optical giant ZEISS China joined the Postdoctoral Innovation and Practice Base in Shanghai’s Pudong New Area, aiming to build an even stronger platform for research and talent development. Maximilian Foerst, President and CEO of ZEISS Greater China, told Caixin, “We do not view China as a low-cost manufacturing base—this has never been our strategy. Far from relocating production from China, we are considering shifting more manufacturing and R&D activities to the country.”

In recent years, China has seen steady and sustained growth in foreign investment inflows. According to the “China Foreign Investment Statistical Bulletin 2023,” in 2022, China’s actual utilized foreign direct investment reached US$189.13 billion, up 4.5% year on year. Measured in renminbi, this figure surpassed RMB 1.2 trillion for the first time, with high‑tech industries emerging as a key driver of growth. Meanwhile, investment from the European Union and ASEAN increased by 95.3% and 9.5%, respectively.

In Wei Jianguo’s view, across the globe, China’s ultra-large‑scale market remains highly attractive. Whether in medical equipment, cutting-edge technologies, or 5G applications, demand is substantial. With the comprehensive removal of foreign‑investment access restrictions in the manufacturing sector, China is placing greater emphasis on foreign investment and, building on years of steady growth, is poised to accelerate its pace going forward.

PwC’s survey report, “Insights from Multinational Executives in China: Challenges and Opportunities for Brand Growth,” released on October 17, found that the majority of surveyed multinational companies operating in China remain optimistic about the Chinese market. Market size, economic growth, and consumer recognition are the three key factors driving these companies to continue investing in brand-building efforts in China. However, they also face challenges such as geopolitical uncertainty, a slowdown in market growth, and intense competition from domestic Chinese brands.

Level up through challenges

At a time when global value chains are being reshaped, how can China’s manufacturing sector sustain breakthroughs in its upgrading process? And how should it address the challenges of attracting foreign investment?

Wei Jianguo pointed out that China’s manufacturing sector still faces critical bottlenecks in certain key technologies and essential complete sets of equipment, such as chips, lithography machines, and etching tools. To address these challenges, China should devote greater effort and implement a three‑step strategy.

First, all manufacturing sectors should prioritize technological innovation as their top priority. Particularly in the current digital economy, it is essential not only to enhance innovation within traditional manufacturing but also to significantly increase investment in emerging fields such as robotics, advanced materials, and cutting-edge processes. Second, under a comprehensive policy framework for technological innovation, talent is paramount. China’s manufacturing industry must cultivate local expertise while also attracting a substantial pool of international talent. Finally, it is crucial to create a world‑class business environment. To drive the upgrading and development of the manufacturing sector, we must foster an optimal global business climate that effectively aligns all production factors—capital, human resources, technology, land, and information—so as to achieve maximum efficiency with minimal input.

Wei Jianguo argues that, against the backdrop of U.S. calls to reshore manufacturing, China should further consolidate its unified national market, as its domestic market resources represent its greatest international advantage—though this advantage has yet to be fully realized. “Whether to locate factories in the United States and then export to China, or to establish production facilities directly in China—many CEOs of U.S. and European multinationals are far more astute than we are, with far more meticulous planning. This is also why, in recent months, figures like Elon Musk, Tim Cook, and numerous other corporate giants from Europe and the U.S. have been visiting China: only a large, robust market can attract major investment projects.”

In his view, the era of attracting foreign investment through preferential policies and low‑cost labor has come to an end. To achieve new approaches and objectives in foreign investment attraction, it is essential not only to leverage a large market but also to unlock benefits from rules, regulations, governance, and standards, while accelerating the implementation of institutional openness. Moreover, with domestic consumption recovery currently showing limited momentum, additional policy measures are needed to bolster it. He estimates that the total scale of foreign investment attracted this year could reach between US$230 billion and US$250 billion.

Gao Ruidong, Chief Economist at Everbright Securities, also stated at the recent China Macroeconomic Forum that foreign investors first and foremost value China’s market, followed by its business environment and cost‑related advantages. If aggregate demand remains weak and prices stay relatively subdued, China’s attractiveness to foreign investors will decline systematically. By focusing on expanding aggregate demand and ensuring that economic growth stays at a level consistent with potential output, it will help sustain the spillover effects of foreign capital and technology into China.

To address these challenges, on August 23, the State Council issued the “Opinions on Further Optimizing the Foreign Investment Environment and Intensifying Efforts to Attract Foreign Investment,” outlining 24 specific measures across six areas, including enhancing the quality of foreign capital utilization, ensuring national treatment for foreign-invested enterprises, and continuously strengthening protection for foreign investors.