Nearly 40 years since China launched its "opening up" policy, the growth of foreign investment in the country has slowed to a crawl.
In March, foreign direct investment (FDI) rose by a scant 0.4 percent from a year earlier to 88.14 billion yuan (U.S. $14 billion), the official Xinhua news agency reported, citing Ministry of Commerce (MOC) figures.
First-quarter FDI of 227.54 billion yuan (U.S. $36.1 billion) increased marginally with a gain of just 0.5 percent.
Despite Xinhua's claim of "steady growth," FDI actually fell when adjusted for inflation.
The slow growth stood in contrast to generally strong economic results reported this month by the National Bureau of Statistics (NBS) for the first quarter. Gross domestic product rose 6.8 percent from a year earlier, matching the pace of the fourth quarter of 2017.
China's government may be anticipating a resurgence of FDI over the coming years after pledging to scrap joint venture requirements and foreign shareholding limits for industries including financial services, automotive production and aircraft manufacturing.
On April 11, People's Bank of China (PBOC) Governor Yi Gang said that steps to open the financial sector would be taken "before the end of this year."
On April 17, the National Development and Reform Commission (NDRC) outlined an easing of restrictions on foreign automakers and other manufacturers in stages from this year through 2022.
Chinese officials have insisted that the moves have "nothing to do" with ongoing U.S.-China trade conflicts, avoiding the implication of concessions under pressure from Washington.
"The measures are major strategic decisions made based on an accurate estimation of China's current development level in order to lead opening-up in the new era to a higher level," said MOC spokesman Gao Feng, according to Xinhua.
Whether foreign investors and the FAI numbers will respond to the easing remains to be seen.
"We have no plan to change our investment ratio," a Honda Motor Co. spokesman told The Wall Street Journal, referring to the automaker's joint venture interests with Chinese manufacturers.
"If we had this option 20 years ago when we were first coming into the market, we might have thought differently, but we've been working with them for two decades," the official said.
Declining impact on economy
The significance of the new rules may become clearer over time, but the impact of foreign investment on the Chinese economy has been declining for years.
According to the MOC, foreign-invested companies comprised less than three percent of China's total last year, but they were responsible for nearly half of the country's foreign trade, more than one-fourth of reported industrial profits and one-fifth of tax revenue, the official English-language China Daily said.
But FDI by itself appears to matter less and less to the economy, according to World Bank data. In 2010, FDI accounted for nearly 4 percent of GDP, but by 2016 it contributed only about 1.5 percent.
The conflicting readings reflect two contrasting views of foreign investment in China.
The 2017 total of FDI reached an all-time high of 878 billion yuan (U.S. $139.9 billion) with growth of 7.9 percent despite a flat first quarter, the MOC reported. But a review of the past decade found that the last double-digit annual growth rate took place in 2010, followed by more or less steady declines since then.
Gone are the days of spectacular foreign investment growth, as seen in 2004-2008, when annual increases averaged over 26 percent, according to World Bank accounts.
It may be too soon to say that FDI in China has reached a plateau, but the reasons for lower growth rates may come into focus as the government pledges further "opening up."
"I would put most of the blame for the slowdown on Chinese insistence on joint ventures and other technology acquisition conditions," said Gary Hufbauer, non-resident senior fellow with the Peterson Institute for International Economics in Washington.
Western companies have been reluctant to turn over their prize technologies, putting a brake on related investments.
"U.S., European Union and Japanese companies have the greatest relative strength in high tech, which would be the natural focus for their investments in China, and it's easy to understand their reticence," Hufbauer said in an email.
‘Not receptive’ to foreign M&As
Despite China's constant references to opening up since the start of the 1978 reforms, few attractive opportunities have materialized in recent years for investors who may also seek to take profits out of the country. Repatriation of profits has been limited by China's capital controls.
"China has not been receptive to foreign merger and acquisition (M&A) initiatives, or greater participation by foreign financial firms, and on a global basis, M&A and finance probably account for two-thirds of inward FDI," said Hufbauer. "So again, the climate in China deserves considerable blame."
Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington, said that China is not interested in attracting FDI for its own sake, although it would have welcomed more investment in 2015-2016 when it was worried about net capital outflows.
China's main goal instead is to gain the technology transfer that comes with FDI, Scissors argued.
"What they want is knowledge from foreign companies so they can drive them out of business," he said.
If that is the case, President Xi Jinping's opening up initiative may do little for foreign automakers and other manufacturers already in China because it would essentially open the barn door after the horse has gone.
In the long term, technology transfer to Chinese companies would eventually lead to declines in FAI rather than increases, said Scissors.
"If you're thinking logically about Xi's strategy, there should be less and less foreign investment in China over time because there should be no opportunities for foreign firms after they're taken over by equally or more capable Chinese firms," he said.
Another explanation for increasing weakness in China's FDI growth is that the well has started to run dry among investors who have already staked billions on opening up.
"The real point is, if you already have a lot of money in the country and if your opportunities are not expanding and you can't easily get money out, why would you put more in?"
In a China Daily opinion piece last week, China's minister of Industry and Information Technology, Miao Wei, stressed the mutual benefits of foreign investment and the reduction of restrictions.
Miao cited concerns that the government's "Made in China 2025" plan to dominate high-tech fields including robotics "may only benefit the local enterprises and create obstacles to foreign companies, thus resulting in unfair competition."
"These concerns are unnecessary," Miao said.
But continual promises of more opening up have been slow to pan out, despite countless claims that the government has improved the investment environment by cutting red tape.
"There's been no movement on opening up in probably a decade," said Scissors, although he added that the new deadlines for easing restrictions offer encouragement.
"I suppose this could be seen as a step in the right direction after a decade of inaction," he said.
On April 17, the NDRC promised to increase access to the Chinese market by issuing two new "negative lists" in the first half of this year to pare down the number of sectors that remain off-limits to foreign investment.
One list would be for China's free-trade zones while the other would apply to the rest of the country, the planning agency said.
China first adopted the negative list reform five years ago for investment in Shanghai's free-trade zone.
Before that, investors were left largely in the dark about what sectors would be considered as off-limits to foreigners.
Investors are waiting for details about the new regulations.
In addition to autos and financial services, the NDRC has said restrictions on foreign investment will be loosened in industries including "energy, resources, infrastructure, transportation, commercial circulation and professional services," according to Xinhua.