The New Online World Could Mean Offline for FDI in China: Political and Economic Factors Affecting Future FDI in China’s Online World
The coronavirus, otherwise known as Covid-19, has hit foreign direct investment (FDI) flows into China hard. This should surprise no one—money is scarce; the payback from FDI now seems far away; and resources are being husbanded on the home front. This has not stopped foreign businesspeople in China from trying to try find the silver lining in the clouds since identifying promising opportunities now may bring rich rewards later. In this vein, they have been highlighting how the epidemic has created new online possibilities in the medical field (online medical consultations, pharmaceutical sales, and remote testing), education and training (online courses, VR-based training), videoconferencing, remote delivery through drones and autonomous vehicles, and digital payments as well as is fueling new demands for AI, robotics, and 5G. The need for foreign investors in these areas remains to be seen given the monopolistic position of Chinese firms in some, low barriers to entry in others, and the fact that online reduces/obviates the need for FDI in yet others. Regarding this, it seems unwise to establish bank branches or mega-stores in shopping malls if customer relationships or product sales can be done effectively online. FDI in the aforementioned online areas also confronts a Chinese government that is highly sensitive about cybersecurity, wants to have leading domestic firms in many of them, and has intensified its involvement in certain technologies (partly to manage the epidemic). On the home front, FDI faces pressure from home governments that want “their” companies to inter alia avoid transferring vital technologies to China, ensure the security of their supply chains, and elevate their online capabilities. The point is not that there are not opportunities, but perhaps there are more political and economic clouds in the silver lining than realized. One only needs to go online to see this.