China remains top destination for foreign investment, according to PwC survey

CEOs have rated China as the world’s top destination for foreign investment, according to a global survey carried out by professional services firm PwC and the China Development Research Foundation.

According to the survey report, ‘Choosing China: Improving the investment environment for multinationals’, more than half (56%) of CEOs surveyed chose China above other major and emerging economies including Brazil, Russia, South Africa, India and the US.

CEOs say they were attracted to China’s expanding consumer markets, skilled talent pool and government incentives.
The survey includes the responses of CEOs from 227 multinationals and features 11 in-depth interviews with CEOs. Not only does this study reflect the engaged outlook of global multinationals towards their investment prospects in China, it also captures the opportunities inherent in the current transformation of China’s economic model.

South Africa recently hosted the fifth BRICS Summit in Durban from the 26th to 27th of March 2013. BRICS is an acronym for the powerful grouping of the world’s leading emerging market economies, namely Brazil, Russia, India, China and South Africa. South African President Jacob Zuma stated at the Summit that China is regarded as one of South Africa’s largest bilateral trading partners with total trade expanding from over US$20 billion in 2011 to US$22 billion in 2012. Amongst one of the key decisions taken at the BRICS is the implementation of the BRICS Development Bank that is expected to provide financial assistance to member states.

Thomas Magill, Head of PwC’s China Desk for South Africa, says: “A major factor in China’s economic success has been its ability to attract foreign investment. “In 2012, China attracted US$111.7 billion of global FDI. We project that China will overtake the US as the world’s largest economy in purchasing parity terms in four years’ time.

“Recent changes to the global economic landscape means China will face new challenges in attracting foreign investment. International investors are increasingly focused on emerging markets as they overtake developed countries to become the driving force for growth in the global economy. The choices available to multinationals are also widening as India, Brazil and several African nations, including South Africa, become more competitive in attracting foreign investment.”

According to the survey, China remains the number one target for investment (56%), followed by India (37%) and Turkey (25%) respectively. CEOs see China as offering the best prospects for growth and more than 80% anticipate that their revenues in the country will increase during the course of 2013. However, South Africa is not favoured as high on the scale by CEOs in terms of growth opportunities (11%).

The study shows that US companies are most likely to have investments in China. Similarly, confidence in China is strongest in the US; though at least 40% of participants from most other regions (Africa, Asia Pacific, Central and Eastern Europe and Western Europe) are also targeting China.
According to the survey, one of China’s biggest investment attractions is its expanding domestic demand (with 34% of participants citing this), though the ratings for Brazil (81%), India (46%) and South Africa (38%) are much higher. South Africa also has a more skilled talent pool according to the survey participants, which is an area that is likely to be significant in attracting investment into high value-added sectors.

However, the survey points out that those comparisons between countries do need some qualification. China is a much bigger market than some countries such as Brazil, India and South Africa. The countries are also at different points in their development as China seeks to create a better balance between consumer-led growth and export-led and investment-led expansion that has been its mainstay. India on the other hand, tends to move the other way, states the survey. Moreover, China wins high ratings across a broad range of areas than other countries, suggesting that its attractions to investors may be more evenly spread.
According to the study, China offers the best prospects for investment among CEOs of consumer, industrial product and service companies (58%). But Brazil is favoured over China by technology businesses (80% and 64% respectively) and the financial services sector (55% and 48% respectively).

Policy paying dividends on foreign investment

“China is facing intense competition in some industries it is targeting. But the government is investing in measures to increase China’s long-term attractiveness as an investment destination,” says Jenny Chen, Vice-Head of PwC’s China Desk for South Africa.

CEOs highlighted a drive to increase domestic consumption (48%), deepen financial reforms on foreign exchange and interest rates (43%) and doubling per capita incomes by 2020 (41%) as the top three policy commitments that would have the greatest effect on their businesses. “These measures are paying dividends, with 70% of CEOs that have operations in China planning to increase their investments here over the coming five years.”

When asked about further measure to improve China’s competitiveness, CEOs highlighted improving government transparency and anti-corruption (73%), reducing economic intervention (53%), and speeding capital market reforms (30%) as areas for further improvement.

Chen says: “Greater transparency and enhanced accountability would strengthen China’s attractiveness and make it easier for foreign enterprises to plan ahead. They would also be a helpful step towards providing investors with greater certainty and a more level playing field to do business.
“By relaxing some restrictions on foreign investors, China could ensure a reciprocal opening-up of markets, creating a win-win scenario for both Chinese outbound and multinational inbound investors.”