by Miranda Dai, Tractus Senior Research Analyst based in our Shanghai Office
Global economic headwinds and geopolitical tensions have subdued cross-border investment growth in recent years. While China has felt the impact, it continues to attract a steady stream of foreign direct investment (FDI), despite concerns over a slowing economy, trade friction and rising costs
According to the fDi 2024 Report, 17,036 FDI projects were recorded globally in 2024, a modest 0.82% year-on-year increase. China accounted for 434 of these, marking a 1.9% rise that outpaced both the global average and India’s 0.7% growth. Additionally, China’s Ministry of Commerce reported 59,080 new foreign-invested enterprises in 2024, a 9.9% year-on-year increase.
From Factory Floor to Future Industries
A key driver of this trend is China’s strategic pivot toward high-end, innovation-led sectors. Its traditional manufacturing base is evolving to prioritize advanced production, services and sustainable practices. The digital and green economies are emerging as central pillars of growth, spanning consumption, investment and exports.
China is shifting away from labor-intensive, low value-added manufacturing and promoting strategic sectors such as next-generation information technology, new energy vehicles, aerospace, biopharmaceuticals and artificial intelligence.
Foreign investors are adjusting accordingly. While inflows to traditional sectors like automotive and apparel have declined, high-tech manufacturing is gaining traction. In 2024, FDI in this segment reached US$14 billion (RMB 96.29 billion), accounting for 11.7% of China’s total utilized FDI. Significant growth was observed in medical instruments and equipment (+98.7%), professional technical services (+40.8%) and computer and office equipment (+21.9%).
This momentum continued into the first quarter of 2025, with high-tech industries attracting an additional $11 billion (RMB 78.61 billion). Notable increases were recorded in e-commerce services (+100.5%), biopharmaceuticals (+63.8%), aerospace equipment (+42.5%), and medical instruments (+12.4%).
Exporting Innovation
In addition to the new focus on investing in emerging industries, an increasing number of foreign companies are establishing R&D centers in China, not just manufacturing facilities, as they tap into the country’s advanced industrial ecosystem to drive R&D that supports both domestic operations and global competitiveness.
Volkswagen Group, for instance, launched its largest R&D center outside Germany in Hefei in 2023, and doubled down with a €2.5 billion expansion in 2024. Siemens followed suit, opening its Shenzhen Motion Control Innovation Center in June 2024 to pioneer next-gen technologies for international deployment.
U.S.-based Cargill upgraded its Shanghai Innovation Center with a $4 million investment, positioning the facility as a regional innovation anchor for Asia-Pacific markets beyond China. Meanwhile, Procter & Gamble expanded its Beijing Innovation Center to enhance global collaboration and export cutting-edge consumer products born in China to worldwide markets.
Similarly, BASF inaugurated its new Asia-Pacific Application Center in Guangdong in 2024, designed as a bridge between local manufacturing and global product development.
These examples illustrate a clear trend: China is increasingly seen as a base for global innovation. Contributing factors include its vast consumer market, strong infrastructure and rapid product development cycles. The 2024 Global Innovation Index ranked China No. 11 globally, and the country became the first in the world to surpass 4 million valid patents, reaching 4.76 million. In addition to saluting No. 10 Shanghai, No. 17 Shenzhen and No. 23 Hangzhou, the Global Startup Ecosystem Report 2025, released in June, highlighted fast-rising emerging startup ecosystems in Nanjing and Wuxi, which the report named the No. 1 emerging ecosystem in part because of a 67% increase in exits over $50 million.
The country’s talent pool is another key advantage. China produces more STEM graduates than any other nation, and its universities are rising in global rankings. Multinational companies are strengthening partnerships with local academic institutions and innovation parks to co-develop technologies and access specialized talent.
As Schneider Electric Senior Vice President Hu Xiao, head of the China Industrial Automation Hub, explained: “Schneider Electric’s R&D efforts closely follow its business development. In China, every business unit is equipped with its own R&D center. Product iteration in China is the fastest, cost requirement is the lowest and delivery speed is the quickest. If a product can succeed in the Chinese market, it is likely to be competitive in the global market as well.”
There Is No Second China
China remains a key destination for value-added investment, underpinned by stable and proactive government policies. In early 2025, China’s Ministry of Industry and Information Technology (MIIT) announced it would implement the 2025 Action Plan for Stabilizing Foreign Investment, which supports the establishment of R&D centers, encourages co-development with local firms and promotes foreign participation in digital and green transformation efforts. Priority areas include smart factory development, clean manufacturing and localization of advanced technologies.
The government has also expanded preferential tax treatments, simplified investment procedures in targeted sectors and increased the number of pilot free trade zones. At the local level, municipal authorities offer tailored incentives to attract and retain foreign investors.
These supportive measures are translating into renewed business confidence. According to the latest survey earlier this year by the Japanese Chamber of Commerce and Industry in China, more than half of the responding companies indicated that they plan to either increase or maintain their investment in China in 2025. Similarly, the 2024-2025 survey report from the British Chamber of Commerce in China shows that 76% of British companies operating in China intend to maintain or expand their investments.
For global investors, the question is no longer whether to stay in China but how to create more value through innovation, integration and long-term engagement. In many boardrooms, the consensus remains: The “next China” is still China.
Tractus Senior Research Analyst Miranda Dai is based in the firm’s Shanghai office. Tractus has 30 years of experience supporting global companies with market entry, site selection and implementation across Asia. Visit tractus-asia.com for more information.