Analysts say China should maintain its allure as destination for foreign investment

China must maintain its attraction as a foreign investment destination in order to introduce more cutting-edge features to support its green transition and manufacturing upgrading, according to analysts.

Overseas investors will be looking to shift more focus to emerging sectors in the future, the analysts said.

China remains a top destination for foreign direct investment this year, with inflows rising by 22.6 percent year-on-year to $87.77 billion in the first five months, according to the Ministry of Commerce.

Gao Ming, who analyses macroeconomics at China Merchants Securities, said maintaining its attraction for foreign investment is of long-term significance for the nation's economic growth, especially in the manufacturing sector.

He said that since last year, more investment has flowed into this sector, especially for high-tech production.

"Global industrial chains in chips, the pharmaceutical sector, high-end equipment and new energy are experiencing a round of restructuring, and China is continually boosting its investment in such sectors," he said.

Hugo Jones, a research associate on China at the London School of Economics' foreign policy think tank LSE IDEAS, said it is crucial for China to use foreign investment to achieve its goal of becoming carbon neutral before 2060.

"As China's economic growth model looks to undergo structural changes in the decade ahead, we should expect to see foreign investment shifting from traditional industries to emerging sectors which hold the potential for high returns and align with the expectations of China's long-term policy agenda," he said.

The nation has outlined a host of documents, known as the 1+N policy system, that will provide the road map it needs to follow to peak carbon emissions before 2030 and attain carbon neutrality before 2060.

Mark Wang, president and CEO of HSBC China, also highlighted the crucial role for increased foreign investment in developing the market for green finance, which will help China achieve its goal of transitioning to net zero by 2060.

"The depth of China's capital markets means it has genuine potential to become a global leader," he said.

"China's pioneering work to build a carbon futures market underlines the vital role the financial sector must play in the net zero transition. Harnessing the knowledge and skills developed in other markets－many of which HSBC is already supporting－can help China achieve its objectives."

Xu Xiujun, who researches the international political economy at the Chinese Academy of Social Sciences' Institute of World Economics and Politics, said China will continue to oppose trade protectionism, promote two-way opening-up, and share its market and investment opportunities with the world to ensure the security of its market and promote global economic recovery.

"The nation will accelerate the fostering of a new development paradigm that takes the domestic market as the mainstay while letting domestic and overseas markets reinforce each other, and a higher level of opening-up will facilitate, enable and support this new paradigm," he said.