Foreign investment upgrades amid transformation

For Anna An, president for China of German industrial and consumer goods group Henkel, 2025 is undoubtedly shaping up to be a busy year.

The company's new plant, with a total investment of 900 million yuan ($124 million), is set to begin test production in Yantai, Shandong province, later this year. This facility is expected to raise the company's production capacity to supply high-end adhesives for industries such as electronics and automobiles.

"We are also planning to launch our new inspiration center for adhesive technologies in Shanghai this year, boosting our innovation capabilities for industrial businesses across China and the broader Asia-Pacific region," said An.

"The tone-setting Central Economic Work Conference held in December emphasized technological innovation and the promotion of consumption, creating significant opportunities for multinational companies like Henkel," she added.

Echoing that sentiment, Nathan Stoner, vice-president of Cummins Inc, a US engine manufacturer, said his company aims to increase its market share in key application sectors within China, including power generation equipment for data centers, high-tech manufacturing, and the engineering, procurement and construction sectors this year.

Highlighting that the company's hydrogen fuel cell products successfully powered 239 transit buses and trucks, and the accumulated mileage of over 16 million kilometers across China in 2024, Stoner, who is also chairman of Cummins China, said the company will continue to innovate on the internal combustion engine system, including high efficiency diesel, natural gas and hydrogen internal combustion engines in China this year.

"We are targeting our investments in zero-emission solutions into various Chinese regional markets where we see demand and adoption happening sooner, and iterating those products to be the best they can be, when customers want more of them," he added.

These examples highlight the growing optimism among multinational corporations regarding the long-term potential of the Chinese market, fueled by the country's economic resilience and its commitment to innovation and openness.

Initially, foreign companies were attracted by China's cost advantages and abundant labor force, using it as a base for producing competitive goods, said Xu Wei, head of the macroeconomic research department at the Development Research Center of the State Council.

As China advanced its infrastructure and industrial systems, it remained a low-cost production hub while evolving to offer sophisticated, high-value manufacturing, allowing foreign companies to integrate more advanced production processes, Xu said.

"With China entering a new era of green and innovation-driven growth in recent years, global investments have increasingly focused on supply chain optimization, high-end manufacturing, customized innovation, and digital and green solutions," he said, adding that sectors such as trade in services and healthcare have also become key areas of foreign investment.

For instance, in addition to announcing a record high of over 657,000 electric vehicle sales in the Chinese mainland in 2024, marking an 8.8 percent year-on-year increase, Tesla Inc, the US EV maker, is currently conducting trial production to manufacture energy-storage batteries at its Shanghai factory.

The US automaker said mass production at this facility is expected to commence fully within the first quarter.

China has been revising its sector list to attract more foreign investment. These efforts, along with the removal of all market access restrictions for foreign investors in the manufacturing sector last year, reflect the country's proactive approach to openness.

Li Yongjie, deputy international trade representative of the Ministry of Commerce, said China will further open up its services sector, with a particular focus on accelerating pilot programs in key areas such as telecommunications, healthcare and education.

A total of 59,080 new foreign-invested firms were established across China in 2024, an increase of 9.9 percent year-on-year, according to information released by the Ministry of Commerce.

Wang Xiaohong, a researcher at the China Center for International Economic Exchanges in Beijing, said that China's ongoing commitment to further opening-up and fostering innovation is positioning the country as both a key player in global supply chains, and a prime destination for investment and strategic expansion.

This evolving environment is expected to create new opportunities for business growth, particularly as China adapts its policies to align with the shifting dynamics of the global economy, she said.

More than half of companies from the United States plan to increase their investments in China this year, according to the 2025 China Business Climate Survey Report released by the American Chamber of Commerce in China (AmCham China) in late January.

The survey, conducted from Oct 21 to Nov 15, involved a total of 368 member companies of AmCham China. It found that nearly half of the participants rank China as one of their top three global investment priorities.

About 68 percent of the US responding companies expect industry markets to see growth in 2025. Two-thirds of them plan to focus on growing their core business activities in China as their primary objective for 2025. Meanwhile, the consumer and services sectors are increasingly focused on driving growth by targeting new customer segments.

Jeff Losch, vice-president and business manager for coating additives technologies at Milliken & Company, a US specialty chemical and performance materials firm, said China is a key market for Milliken, not only because of its vast scale, but also due to its forward-thinking approach to sustainability.

"We have observed a strong demand in the EV and industrial coating businesses. China's EV industry is extremely strong and has led the global market this year, with Chinese manufacturers making their presence felt in markets across many countries," said Losch.

He said that the quick growth of China's EV market has clearly created significant opportunities for the coatings industry. EV manufacturing requires coatings with high durability and environmental standards, which align closely with Milliken's innovation goals.

Eager to seize more market share, the US company plans to continue investing in its innovation unit, expand sales networks and enhance supply chain operations within China.

As China undergoes a profound transformation, making business navigation more challenging than before, Denis Depoux, global managing director at German consultancy Roland Berger, suggested multinational corporations make targeted investments to navigate the unique characteristics of the Chinese market and local competition.

"This strategy emphasizes enhancing localization efforts, particularly by tapping into China's innovation ecosystem, while also adapting to increasingly differentiated norms and standards," he said.

Affected by shrinking global investments in recent years, together with factors like slower economic growth, rising geopolitical risks, weak demand and stricter investment reviews in certain countries, foreign direct investment in the Chinese mainland in actual use totaled 826.25 billion yuan in 2024, dropping 27.1 percent on a yearly basis, statistics from the Ministry of Commerce showed.

The adjustment of China's domestic industrial structure and rising labor costs have diminished the country's low-cost advantages, said Cui Fan, a professor at the University of International Business and Economics in Beijing.

As a result, some labor-intensive industries have shifted gradually due to changes in comparative advantages. This reflects the evolution of China's economic development stage and factor endowments. This is a natural and expected process, said Cui.

Driven by China's stable political, economic and social environment, as well as its large-scale production capabilities and efforts to grow strategic emerging industries, FDI flow is expected to continue recovering within the country in 2025, said Gao Lingyun, a researcher at the Institute of World Economics and Politics, which is affiliated with the Chinese Academy of Social Sciences in Beijing.

Strategic emerging industries in China include sectors such as energy-saving and environmental protection, next-generation information technology, biotechnology, high-end equipment manufacturing, new energy, advanced materials and EVs.

For efficiency-driven multinational companies, regions with dense and well-connected networks are emerging as primary targets for strategic expansion. This emphasis is closely tied to factors like strong industry integration, complementary capabilities and easy accessibility, and all these factors enable streamlined operations and growth, said Gao.