Skip to content

China Reports FDI Surge, Cross-Strait Semiconductor Investment

On May 13, 2021, the Ministry of Commerce of the People’s Republic of China (MOFCOM) reported that overall foreign direct investment (FDI) flowing into China grew by 38.6% (over the first four months of 2021, when compared with the same period in 2020. The January-April numbers also increased by 30.1% when compared with the same period in 2019, indicating that the strong growth is not purely the result of suppressed stats (arising from COVID-19’s economic slowdown) in 2020. MOFCOM reports that “paid in” FDI expanded by 46.8% in services and 29.1% for “hi-tech” industries (34% for hi-tech services and 15.4% for hi-tech manufacturing). The Financial Times reports that China’s inward FDI (as part of a larger transition of global funds towards Asia) has been buoyed by “M&A targeting information technology and communications, ecommerce and pharmaceutical companies” 

Perhaps surprisingly, the Taiwan Affairs Office of the State Council announced that mainland China’s “actual use” of Taiwanese investment grew by 29.9% (to US$330 million) in Q1 2021 vs. Q1 2020. Taiwan’s Investment Commission (a division of the Ministry of Economic Affairs), however, notes that the total approved investment amount flowing from Taiwan to the mainland actually decreased by 68.7% in Q1 2021(to US$641 million) when compared with Q1 2020. This discrepancy likely reflects the Chinese reporting of “actual utilization,” which differs from the “contractual value” of foreign investing. It appears that while the contractual or “total” value of Taiwanese investment (as reported by the Investment Commission) has fallen, the actual utilization (as reported by the Taiwan Affairs Office) has increased. 

In terms of “actual use” investment, this increase goes hand-in-hand with worldwide demand for semiconductors. The South China Morning Post reports that Taiwanese chip-makers are expanding investment into China to take advantage of existing supply chains and manufacturing capacity, focusing mainly on lower-end products to “to protect the island’s domestic industry from Chinese state subsidies, intellectual property theft, and the poaching of Taiwanese talent.” 

The global computer chip market, which is currently experiencing a shortage, is dominated by the Taiwanese firm TSMC. TSMC is heavily investing in future development (the company’s total capital spending for 2021 is estimated to reach as much as US$28 billion), including a US$2.87 billion expansion of a manufacturing facility in the mainland Chinese city of Nanjing. 

The TSMC Nanjing case illustrates how the chipmaking industry, which produces crucial components for high-tech devices/vehicles, is intertwined with broader geopolitical and security issues. Taiwanese legislators have expressed concerns over a potential brain drain and the theft of commercial secrets, while Chinese observers are concerned that the investment from TSMC could stifle the development of its domestic chip making industry. And underneath it all, players must contend with American sanctions on Chinese tech firms and the threat of cross-strait military action. The industry, as with the region, is expected to be a political flashpoint area in the coming years.

Need an account? Sign up