The truth behind the "foreign capital withdrawal theory": In the first half of the year, the number of newly established foreign-funded enterprises in China grew by 5.3%, and investment in high-tech industries increased by 33.2%. From market access to supply chains, China remains a crucial node in the global layout of multinational corporations.
Amid global foreign direct investment (FDI) still under pressure and persistent talk of "foreign capital exiting China," more foreign companies are choosing to increase their stakes in China. What does this mean?
On July 23, at a press conference held by the State Council Information Office, Vice Minister of Commerce Yan Dong disclosed a set of key data: In the first half of the year, nearly 4,800 foreign-invested enterprises made additional investments in China. During this period, the number of newly established foreign-funded enterprises in China rose by 5.3%, with total attracted investment reaching 402.14 billion yuan. The investment structure further optimized, with high-tech industry investment surging by 33.2%, its share increasing to 42.4%.
In the first six months of this year, nearly 4,800 foreign-invested enterprises increased their investment in China. This figure has expanded compared to the nearly 4,000 disclosed in the first five months. The momentum of foreign capital increasing its presence in China did not weaken in June but continued to strengthen.
Attracted investment scale stabilizes, with high-tech industries drawing the most attention
The "foreign capital withdrawal theory" was once rampant. According to the Ministry of Commerce, in 2024, China's actual use of foreign capital was 826.25 billion yuan, a year-on-year decrease of 27.1%. In 2025, actual use of foreign capital was 747.69 billion yuan, down 9.5% year-on-year.
Meng Huating, Director of the Foreign Investment Management Department of the Ministry of Commerce, introduced at the press conference that the actual use of foreign capital in the first half of this year reached 402.14 billion yuan, with the decline narrowing by 10.2 percentage points compared to the same period last year. Both May and June achieved positive year-on-year growth.
Foreign capital constitutes a significant and relatively stable force within China's economic operation. Meng Huating noted that by the end of 2025, the stock of foreign capital absorbed by China had approached $4 trillion. From January to June this year, the number of newly established foreign-funded enterprises increased by 5.3% year-on-year. Over 530,000 foreign-funded enterprises contribute approximately 2.5 trillion yuan in taxes annually. The stock of foreign capital is stable, while incremental growth is improving.
More noteworthy than the total amount are the structural changes. Data shows that in the first half of the year, investment in high-tech industries attracted by foreign capital grew by 33.2%, reaching a record high of 42.4% of total investment. Investment in modern service industries accounted for 57%, with electronic and communication equipment manufacturing growing by 52%, scientific and technological achievement conversion services rising by 57.1%, and research and development and design services increasing by 82%.
Aparna Bharadwaj, Global Lead for BCG's Global Advantage practice, told a publication that BCG conducted a round of interviews with Fortune 500 companies, and almost all respondents said they would either maintain or further increase their investment in China. Aparna believes that in the past, cooperation between foreign companies and China was more of a manufacturing partnership built on cost advantages. In the future, the true source of competitive advantage will gradually shift towards innovation, talent, and connections between Asian cultures.
The rationale behind increased foreign investment: market, supporting industries, and innovation
Why are foreign companies choosing to continue increasing their investment in China against a backdrop of global investment caution?
Professor Chen Guangyan, Emeritus Professor at Nanyang Technological University in Singapore, believes that China provides multinational corporations with certainty in demand, industrial ecosystem certainty, policy certainty, and certainty in the application and implementation of innovation. China is accelerating its transformation into a world-class platform for scaling up technological applications, particularly in areas like artificial intelligence, smart manufacturing, fintech, electric vehicles, and digital logistics.
First is the demand attraction of the ultra-large-scale market. Taking the car company Tesla Motors as an example, according to an article on the Shanghai municipal government's English-language website, the Tesla Model Y continued to be China's best-selling SUV in 2025 and has led the mid-to-high-end car market in sales for four consecutive years.
Manufacturing in China can also serve global exports. In 2025, the Tesla Shanghai factory delivered 851,000 vehicles, accounting for 52% of Tesla's global electric vehicle deliveries. While meeting local demand, the Shanghai Gigafactory also serves as a vital export hub for Tesla, consistently supplying the Asia-Pacific and European markets and helping achieve record deliveries in countries like South Korea, Malaysia, the Philippines, and Singapore.
At the same time, the rapidly iterating consumer demand of the Chinese market, combined with its complete industrial clusters and supplier networks in fields like advanced manufacturing and digital infrastructure, provides multinational corporations with integrated support from research and development, design, to mass production. This appeal is particularly prominent in emerging industries such as semiconductors, new energy, and intelligent connected vehicles.
The International Institute for Management Development (IMD) in Switzerland recently released its "2026 Global Competitiveness Report," which saw China's ranking rise from 16th to 12th. An IMD article on China's innovation system states that the system is designed around "speed" and "scale," granting companies a clear advantage in execution.
The continuity and predictability of Chinese policies also provide an important basis for long-term investment decisions by multinational corporations. The Ministry of Commerce stated that going forward, it will continue to "expand increments, stabilize stocks, and improve quality," continuously expanding openness. This includes shortening the negative list for foreign investment access, expanding pilot programs for opening up service industries like telecommunications and healthcare, and optimizing residence and stay policies for foreign professionals.
Regarding the direction of investment in China, Meng Huating said the Ministry of Commerce will accelerate the revision and introduction of regulations concerning foreign investors' mergers and acquisitions of domestic enterprises. The Ministry will also implement the encouraged foreign investment industry catalogue, guiding foreign investment towards advanced manufacturing sectors like organic polymer materials and high-efficiency energy-saving magnetic suspension equipment, as well as modern service sectors like humanoid robot research and development and modern high-end shipping services.
Global investment concentrates in a few regions and industries, with China in focus
The logic behind the changes becomes clearer when examining China's foreign investment attraction performance within the global context.
On July 7, the United Nations Conference on Trade and Development released its "World Investment Report 2026," showing that in 2025, global FDI rebounded after two consecutive years of decline, growing by 6% to reach $1.6 trillion. However, this recovery is highly concentrated, with international investment increasingly funneled into a few economies and strategic industries.
In 2025, the trend of global FDI concentrating in a few countries and strategic sectors became more pronounced. Regionally, FDI flows to developed economies grew by 11%, while flows to developing economies increased by only 2% to $901 billion. Among these, developing Asian economies remained the world's largest destination for FDI, accounting for about 40% of the global total.
By industry, global FDI is highly focused on AI infrastructure, semiconductors, critical minerals, and the energy transition. The report states that in 2025, these industries accounted for 44% of global greenfield investment project value, compared to just 16% five years ago. Data centers, oil and gas, and semiconductors were the main growth points, while traditional renewable energy, infrastructure, and manufacturing saw declines.
This trend closely aligns with the high share of high-tech industries in China's first-half investment attraction structure. It also explains why China can still attract significant incremental funds even when the global pool of multinational investment is not particularly abundant. The scarcity is not capital itself, but the industrial soil capable of accommodating high-tech, high-value-added investments. This is precisely the capability China is focusing on building.
"Foreign investors' attention on the Chinese economy has clearly recovered, but the actual return of money has not yet followed. So I characterize this stage as a period of repairing confidence and interest," said Song Yu, Chief Economist at UBS Securities, in a recent interview. He noted that recently, many institutions have been holding China-themed conferences, with every venue packed. "At the UBS Asian Investment Conference, I have been meeting with investors intensively. Everyone is very eager to talk about China, and they talk about it a lot. This is a significant change."
Market participants believe that the "additional investment" behavior of existing foreign capital may become a more important indicator for gauging foreign investor confidence. Its implications often reflect multinational corporations' long-term assessment of China's development prospects better than the number of newly established enterprises. With the continued implementation of policy tools like pilot free trade zones and comprehensive pilot programs for expanding the opening of the service industry, foreign capital is expected to gain more investment opportunities in specific sub-sectors.
A report published by the Tsinghua University Latin America Center pointed out that China's share of global FDI fell from 15.5% in 2020 to approximately 6.7% in 2025. The reasons for the decline in foreign investment are multifaceted, including rising costs, intensified competition, industrial upgrades, geopolitical factors, weaker expectations for China's consumer market, and a reduction in export-oriented investment caused by US tariff barriers.
The aforementioned report particularly emphasizes that the "withdrawal" of foreign capital is more of a structural adjustment than a full-scale retreat. While capital is pulling out of traditional industries, it is also placing more resources into China's future-oriented industries. China's ultra-large market, complete industrial chain, and rapid technological iteration capabilities remain its core advantages for attracting foreign investment. Looking ahead, China needs to guard against the risks of decoupling and supply chain disruption while avoiding the trap of closed-door innovation, finding a new balance between openness and autonomy, and between growth and risk, to promote the building of an open world economy.
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