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Some media reports recently asserted that "a massive amount of foreign capital is being withdrawn from China," following the closure of some foreign-owned factories in China.
Japanese watch maker Citizen announced that it was closing its factory in southern China's Guangzhou City, and fired all the Chinese employees in February. Microsoft shut down its factories in Dongguan and Beijing, and is expected to transfer its production facility to Vietnam. Some other foreign firms also reportedly transferred their factories in China to their home country or Southeast Asian countries.
Although these announcements are indeed true, the assertion of "massive capital flight" is an overgeneralization.
China's GDP grew by 7.4 percent last year. Though it was slowing down compared to the country's performance in previous years, it was still much higher than the United States (2.4 percent), the European Union (0.8 percent) and Japan (0.2 percent in the last quarter of 2014). China also overtook the United States to become the world's top destination for foreign direct investment (FDI) for the first time since 2003. The assertion of "foreign capital being withdrawn from China" did not take into consideration the strategic shifts made by some foreign companies and China's changing industrial landscape.
China as the top destination for FDI
According to China's Ministry of Commerce, the utilized FDI last year was US$119.56 billion, an increase of 1.7 percent from the year before. China's overseas investment and FDI are gradually closing the gap, and the average amount of contract investment rose 14 percent.
Based on the figures released by the United Nations Conference of Trade and Development, global FDI fell by 8 percent to US$1.26 trillion last year, due to the downward trend in the global economy and the rise of geopolitical risks. But FDI in the Chinese mainland increased about 3 percent to US$128 billion, making it the top spot for foreign investment.
Hong Kong and the United States took the second and third spots for FDI last year. As most of the FDI in Hong Kong flowed into the Chinese mainland, the combined FDI of the Chinese mainland and Hong Kong is twice the size of FDI in the United States.