Multinationals deepening local investment pivot

Foreign enterprises are demonstrating renewed vigor and strategic commitment to the Chinese market, doubling down on localization and innovation, fueled by improving business performance and a stabilizing economic outlook.

US companies operating in China demonstrated stronger financial results in 2025, according to the latest China Business Climate Survey Report recently released by the American Chamber of Commerce in China. More than half of the respondents reported being profitable or very profitable, while the share of loss-making firms narrowed to 14 percent, signaling a robust post-pandemic recovery.

Despite challenges like bilateral trade frictions, confidence in the market's long-term potential remains intact. More than 50 percent of surveyed US companies ranked China among their top three global investment destinations, and 57 percent said they plan to increase investment. Most companies said they have no intention of relocating operations overseas, viewing recent adjustments mainly as part of broader risk management rather than a retreat from China.

Echoing this sentiment, the German Chamber of Commerce in China reported a slight rebound in business sentiment. While acknowledging challenges such as cost pressures and intensifying competition, more than half of German firms said they are considering deeper engagement with Chinese partners. Viewing local companies as innovation leaders, German businesses are increasingly pursuing partnerships focused on research and development, faster industrialization and adapting to "China speed", according to a 2025/26 Business Confidence Survey released in December.

The survey also found that Chinese companies' overseas expansion has become an important business opportunity for German firms. Many respondents said they are already supporting Chinese companies going abroad by providing products and services, reflecting closer integration between Chinese and European supply chains.

Beyond sentiment, hard data from capital markets validate this renewed confidence. UBS data showed that foreign-involved mergers and acquisitions in China reached 600 billion yuan ($86.2 billion) in 2025, the highest level in a decade. Market analysts say this reflects a growing consensus among global investors that Chinese assets remain difficult to bypass amid rising demand for diversified portfolios.

Major international financial institutions have expressed similar views. HSBC said in its 2026 outlook that China's focus on boosting domestic demand, advancing structural reforms and expanding opening-up will support steady economic growth. Innovation, it said, is emerging as a key advantage alongside China's large production capacity and vast market.

Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation, said foreign investor confidence in China is rooted in policy stability, relatively strong growth compared with other major economies, and a well-developed industrial and innovation ecosystem.

"Foreign investors in China are no longer chasing the lowest labor costs," Zhou said. "They place greater emphasis on supply chain stability and innovation capacity, which are critical for improving their competitiveness."

To sustain this momentum, Zhou said policymakers could tailor support to different industries, improve services such as talent mobility and intellectual property protection, and expand investment promotion beyond developed economies. Aligning foreign investment policies with initiatives such as the Belt and Road Initiative could also help create a more balanced and inclusive environment.

Committed to high-standard opening-up, China has accelerated efforts to streamline market access, lifting all restrictions on foreign investment in the manufacturing sector and paring down the negative list to create a more open environment for global enterprises.