As Beijing rolls out new measures to stabilize foreign investment, industry insiders say many multinational companies are continuing to scale back their exposure to China, shifting new investment and production capacity to Southeast Asia, India, and Mexico amid growing concerns over regulatory uncertainty, data restrictions, and geopolitical tensions.
They spoke to The Epoch Times on the condition of anonymity or using only their surnames out of fear of reprisal.
On June 23, China’s Ministry of Commerce announced a 15-point action plan aimed at attracting and retaining foreign capital, covering areas including cross-border data transfers, foreign mergers and acquisitions, profit reinvestment, research and development centers, financial risk management tools, and pilot programs allowing wholly foreign-owned hospitals.
The initiative comes as China faces mounting challenges in convincing foreign companies to expand operations in the world’s second-largest economy.
An insider close to China’s Ministry of Commerce told The Epoch Times that foreign capital is leaving China at a faster pace than official statistics suggest.
“Over the past few months, foreign-investment withdrawals have increased about 30 percent compared with the same period last year,” the insider said. “That’s something we haven’t seen in the past five years.”
She said senior Chinese Communist Party (CCP) officials have become increasingly concerned about the trend and have tasked Vice Premier He Lifeng with leading efforts to stabilize foreign investment, particularly from Germany and other major trading partners.
Officials are concerned that worsening trade frictions with Europe and the United States could further weaken investor confidence, she said.
At the same time, the insider noted a contradiction in Beijing’s approach.
She said that the regime wants to retain foreign investment but is also stepping up scrutiny of foreign companies’ supply chains and industrial networks.
Questions Over Foreign Investment Data
Chinese news portal Sohu reported that the official figures from the Ministry of Commerce showed that 25,297 new foreign-invested enterprises were established nationwide between January and May, up by 5.3 percent from a year earlier.
However, actual foreign direct investment utilized during the same period fell by 8.6 percent year-over-year to 327.3 billion yuan ($45.6 billion). Investment inflows in May alone rose by 5.9 percent from a year earlier.
The insider expressed skepticism about the reliability of the official figures, saying many of the reported investments originate from Chinese firms that register entities overseas before reinvesting back into China.
She also questioned the quality of data reported by local governments.
“These numbers are largely compiled by provincial authorities and reported to the Ministry of Commerce,” she said. “Historically, there were separate internal and public datasets. The internal data disappeared several years ago, leaving only the figures released publicly.”
New Incentives Target Key Investor Concerns
The newly announced action plan seeks to address several long-standing complaints from foreign businesses operating in China.
Among its provisions are plans to accelerate revisions to rules governing foreign acquisitions of domestic Chinese firms, simplify approval procedures, and improve payment arrangements for mergers and acquisitions.
The plan also calls for expanding pilot programs that allow local authorities to create negative lists governing cross-border data transfers, implementing tax incentives for reinvested profits, and strengthening support for foreign-funded research centers.
According to the insider, these issues have become major concerns for foreign companies.
“Investors don’t just look at incentives,” she said. “They want to know whether their data can move across borders and whether they'll be able to exit the market when necessary. Many foreign companies are no longer directing their new investment to China.”
For multinational corporations, cross-border data rules affect everything from customer information and financial records to supply-chain management systems and research operations. Restrictions on transferring data outside China can complicate oversight by corporate headquarters and increase compliance costs.
A scholar in Jiangsu Province told The Epoch Times that the new policy package should not be interpreted as evidence that Beijing intends to significantly reopen China’s economy.
“The measures package together market access, capital flows, data management, research support, and business-environment policies,” he said. “But that doesn’t mean the CCP is moving toward greater openness.”
The scholar argued that under Chinese leader Xi Jinping, state-owned enterprises have gained a growing role in the economy, while private firms face increasing pressure.
“The expansion of state-owned enterprises suggests the market is becoming more closed and the atmosphere is becoming more centralized,” he said.
The scholar contended that industries dominated by large state-owned firms often leave less room for private-sector competition, further discouraging investment.
Manufacturers Shift Production Beyond China
On the ground, exporters say many foreign clients have already begun diversifying production away from China.
A manufacturer in Guangdong Province with the surname Zeng told The Epoch Times that foreign clients have increasingly moved orders to countries such as Vietnam, India, and Mexico.
“Orders are gradually being transferred to other countries,” he said. “Many customers now require suppliers to have overseas production lines. They’re worried about tariffs and political risks.”
China still retains significant supply-chain advantages, he said, but the era when companies concentrated nearly all production in China has largely passed.
As production shifts elsewhere, the effects ripple beyond factories to suppliers, logistics providers, packaging companies, labor contractors, and commercial landlords.
A businessman in the city of Wenzhou with the surname Wang, who has worked in cross-border trade for two decades, told The Epoch Times that companies in eastern China face similar pressures.
“Many firms in Zhejiang and Jiangsu are considering overseas factories,” Wang said. “Some clients want production moved to neighboring countries to avoid trade barriers.”
But relocating is not always practical, he said.
“Our factories are spread across the region, and many companies don’t have the money to move everything overseas,” he said. “There are also legal and operational challenges in unfamiliar markets like Vietnam.”
Many multinational corporations have adopted what is known as a “China + 1” strategy, keeping research, management, and some production in China while directing new manufacturing investment to alternative locations such as Vietnam, India, and Mexico.
According to the scholar, Beijing’s efforts to attract foreign capital face a fundamental dilemma.
“On one hand, the CCP is offering incentives to foreign investors,” he said. “On the other hand, they continue to treat foreign capital with suspicion and strengthen controls. Those two approaches are difficult to reconcile.”
Zhou Yu contributed to this report.
