Edward Tse

Opinion | How China became a land of inspiration and innovation for foreign investors

Foreign firms are coming to the realisation that China is not just a profit centre but a place where new knowledge and competitive advantage can be obtained

Its resilience is a result of its governance model, combining efficient top-down planning by the central government with dynamic, innovative entrepreneurship

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Edward Tse

Published: 1:00am, 8 Feb 2021Updated: 1:19am, 8 Feb 2021

Last year marked the first year in which China took the position of top foreign investment destination from the United States. According to Unctad, foreign direct investment (FDI) in the US fell to US$134 billion in 2020, a decline of 49 per cent. Meanwhile, FDI in China rose by 4 per cent to US$163 billion.

Some observers have said the drop of FDI in the US was because of Covid-19, implying it would rebound as soon as the pandemic stabilises. At the same time, the renewal of economic growth in China, aided by its quick recovery from the pandemic, has helped foreign investment soar. China was the only major economy that managed to grow in 2020, expanding by 2.3 per cent.

Under former US president Donald Trump, the US pressured China on multiple fronts: the trade war, the US-China technology divide, threats of economic decoupling, attempts to ban TikTok and WeChat, and more. However, these measures were not enough to deter the resilient Chinese economy.

This resilience is a result of China’s governance model, combining efficient top-down planning by the central government with a dynamic and innovative entrepreneur class. Local governments provide a glue between these two as they implement the central government’s policies.

The effectiveness of this approach is further buttressed by China’s dual-enterprise structure. State-owned enterprises bear much social responsibility, undertaking major initiatives such as key infrastructure projects which provide the foundation on which private enterprises can innovate and grow.

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This development approach is experimental in nature as China continues to seek ways to reform and deregulate. Simultaneously, China continues to embrace multilateralism and globalisation, both of which underpin the positive development of the global economy and humanity. While the Trump administration embraced protectionism, China continues to deregulate and open up market access to foreign companies.