China 'still a draw' for many US firms

China is still an attractive destination for US investments despite rising labor and raw material costs, according to the US Chamber of Commerce.

"Absolutely, China is still an attractive destination for US investment, but increasingly not on a wage basis, as emerging economies like Vietnam and Indonesia have lower wages," Myron Brilliant, senior vice-president of the international division of the chamber, said.

"US investment in China is changing slowly. One of the most attractive points of the country is the size of the economy and the 1.3 billion population. There is a desire (among) US investors to manufacture and produce here and sell to the domestic market," he said.

Brilliant urged Chinese investors to look at commercial development in the US and expand investments in the US in industries such as retail, manufacturing and real estate, since millions of jobs depend on foreign direct investment.

The first four months saw investments from the US, one of China's major sources of foreign direct investment, edge up 1.9 percent year-on-year, after a full-year decline of 26 percent in 2011, according to the Ministry of Commerce.

"US investment in China will keep increasing this year because China has been a top investment destination for many years with its infrastructure and high-quality labor.

"In the next five to 10 years, China will still be a highly attractive investment destination having enhanced efficiency and an expanded domestic market supported by rising incomes," said Wang Haifeng, director of international economics at the Institute for International Economic Research, a think tank under the National Development and Reform Commission.

Foreign direct investment (FDI) in China edged down 0.74 percent year-on-year in April. FDI has been falling on a year-on-year basis since December, according to the ministry.

"The sluggish world economy affected global direct investment and preferential policies in other emerging economies have brought more competition for China to attract FDI.

"At home, rising costs blunted the competitive edge for foreign investors and China began to focus on the quality of FDI, which together affected the scale of foreign investment flowing into China," Shen Danyang, ministry spokesman, told a regular news briefing on Tuesday.

Wang said that rising costs will drive US investment to western parts of China, and make use of low labor and land costs to tap the domestic market.

China is optimistic about the prospect of attracting FDI because of the improving investment environment.

In addition, Japanese manufacturers are investing more in China and India, and Singaporean medium-sized enterprises have opted for China as the top investment destination for exploring overseas markets in Asia, Shen said.

"However, we are cautious about China's FDI inflows as the US and EU are encouraging the reshoring of their overseas manufacturing.

"At present, there is no massive withdrawal of foreign investment from China. But in the medium and long term, we can't exclude the possibility that reshoring initiatives will reduce EU and US foreign investment, including investment in China," he said.

Wang excluded the probability of US and EU manufacturers moving their production capacity in China to other emerging economies.

"Industrial chains in manufacturing are well developed in China and it costs too much for investors to move them to another destination," he said.

lijiabao@chinadaily.com.cn