Nicola Stoev
China remains a critical market for multinational firms. It is the world’s second-largest economy and the largest manufacturing and trading state. China is also among the world’s greatest beneficiaries of foreign direct investment (FDI). As of the mid-2010s, approximately a third of China’s GDP could be traced to foreign-invested enterprises (FIEs), their supply chains, and the consumer spending of related employees. However, shifting policies, slower economic growth, changing consumer behavior, and geopolitical tensions are now prompting a rethink of China strategy among many foreign companies.
A Shifting Policy Environment Elbows Out Foreign Firms
Foreign firms have always regarded China’s policy environment as challenging. China reserves a substantial portion of its economy for the state or state-owned enterprises (SOEs) through a Negative List for Market Access. Beijing further restricts the access of foreign companies through its Special Administrative Measures (Negative List) for Foreign Investment Access, while the financial sector has its own additional restrictions. And while the number of sectors from which foreign firms are excluded has been substantially reduced over time, China is still among the most restrictive of the world’s largest economies.
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