Services sector emerges as key to FDI in China

Led by supply-side structural reform and booming size of the middle class, China is confident of its services' ability to attract foreign direct investment or FDI.

More profound changes are occurring in relatively developed regions, said senior business executives.

The supply-side reforms aim to improve all the three economic sectors: services, manufacturing and agriculture.

Environmental protection, the quality and scale of production, and the further opening-up of Chinese markets to foreign investors are also priority areas.

In the first 11 months, FDI in the services sector climbed 13.5 percent year-on-year to 582.75 billion yuan ($88.08 billion), or 72.5 percent of the total.

The high-tech services industry actually used 177.1 billion yuan in FDI, more than double the amount for the same period last year, data from the Ministry of Commerce show.

The experience of Assa Abloy, the Swedish door manufacturer, in China exemplifies the changes sweeping the FDI environment.

Lars-Gunnar Edh, president for Greater China of Assa Abloy, said the company believes the country's growing need for security solutions will continue to surge.

"Similar to many global companies, we are also banking on the proliferation of the middle class in countries such as China and other emerging markets, on the belief that when people get wealthier, they will spend more money on door openings and safety solutions," he said.

With the real estate market slowing, the company is trying to grab growth opportunities in the country's top and second-tier cities such as Shanghai, Shenzhen and Chongqing where demand for home, office and venue security products is higher.

The company will invest more in robots and smart automation to improve quality and tap the growing labor cost.

Since the company's entry into China in the late 1990s, Assa Abloy, supported by more than 47,000 employee worldwide, acquired and merged with many local brands such as Panpan Door, Guli and Yale Lock.

Other business leaders said China must develop new services and products that address the latest trends in domestic consumer needs, and foster innovation to make the services sector more efficient to compete with global rivals.

Winston Patrick Kuo, chief technology officer of Shanghai-based CloudHealth Genomics Ltd, noted that many of China's middle-class consumers are confident and well-educated. They also earn good salaries, in both the private and public sectors. They tend to choose healthcare products and services provided by foreign companies.

"Other components, in the context of healthcare services and products, are 'quality' and 'reproducibility' in China," he said. "Many Chinese middle-class consumers still travel to Hong Kong, South Korea or the US to get a second (medical) opinion or a test done."

The number of private or foreign-funded hospitals in China topped 17,000 in the first half of this year, accounting for 57.5 percent of the total across the country, according to the National Health and Family Planning Commission.

Besides boosting healthcare services, China so far has created 11 free trade zones where foreign firms can enjoy streamlined registration procedures.

The country is shortening the list of sectors that are offlimits to foreign investors, as well as reducing market entry restrictions for industries such as transportation and financial services.

"Foreign investors are gradually quitting labor-intensive industries and shifting to services and technology-intensive industries in China," said Huo Jianguo, former president of the Chinese Academy of International Trade and Economic Cooperation.

"Developing the services sector, therefore, is vital to sustaining economic growth and encouraging foreign capital flows into the country," Huo said. "China must further open its doors in certain monopoly sectors such as healthcare and banking to release more spaces."

Apart from attracting foreign capital, China effected changes to rules on permanent residence for foreigners in April. The reform serves the country's talent development strategy, which is to attract more innovative and entrepreneurial talent.