Transition

Despite China's attractiveness to foreign investors, FDI growth in China is facing a gradual slowdown. It stood at 8 percent year on year in 2011, less than the global growth of 16 percent and an 11-percent growth in developing countries, according to the UNCTAD report.

The downward trend has yet to correct itself in 2012. From January to July 2012, newly established foreign-invested enterprises in China numbered 13,677, a year-on-year decline of 12.33 percent. During that period, FDI was $66.67 billion, a 3.64-percent year-on-year decrease, according to the Chinese Ministry of Commerce (MOFCOM).

Meanwhile, two major transitions are in the making when it comes to FDI in China: sector and location.

"The Chinese Government will further implement proactive policies to encourage and expand the use of foreign investment," said Wang Chao, Vice Minister of Commerce. "Moreover, the structure of FDI should be optimized and the level of utilizing FDI enhanced. FDI inflow will be steered into emerging new industries, the modern service sector, the hi-end manufacturing sector, the hi-tech sector, modern agriculture and energy-saving and environmentally friendly sectors."

On January 30, 2012, the National Development and Reform Commission and the MOFCOM jointly promulgated the Catalog for the Guidance of Foreign Investment Industries. The new catalog encourages foreign investment into modern agriculture, hi-tech, advanced manufacturing, new energy and the modern service sector.

As China transfers industries from the more developed east coastal regions to the less developed central and western regions, FDI has followed suit.

MOFCOM, together with other departments, is formulating an industrial index for foreign investment in China's central and western regions.

"We plan to offer policy support and more incentives to guide FDI to these regions," said Wang.

"We are building a very large factory in Zhumadian, central China's Henan Province. In the next two years, Nestle will have two large factories in southwest China's Sichuan Province. As a matter of fact, all the new factories of Nestle will be built in central and western China," said Decorvet of Nestle. "We do it for two reasons. First, the level of purchasing power of these regions has increased a lot. That's where the customers are. Second, our factories in coastal regions are struggling to find people to work for us. That's why we move to central and western China."

At the 16th CIFIT, suggestions were also made on how to optimize the environment for foreign investors.

"If China wants to attract more foreign investment and companies, the Chinese Government should improve the transparency of its rules and regulations so that people know exactly how those rules are made and that they are consistent and predictable," Gary Faye Locke, U.S. Ambassador to China, told ChinAfrica. "And people can give comments and advice to those rules and regulations and impact them."

"Besides, if the country wants to move from low-cost manufacturing to higher-valued industrial activities, encourage more innovation and more R&D in China, it has to have stronger protection for intellectual property rights. If it wants to build an innovative society, it has to pay stronger attention to intellectual property rights protection," Locke said.

Recently, there has also been talk of the manufacturing industry moving out of China and back to the United States or elsewhere.

The flow of manufacturing back to the United States is not necessarily bad for China, said Seyedin of AmCham South China. China should shift from an export-oriented economy to a higher valued-added economy, he said.