Multifaceted business advantages prove their worth

Editor's note: At a recent news conference, Vice-Minister of Commerce Ling Ji noted that foreign companies not only pay attention to the cost of labor and land in China, but also value China's infrastructure, industry and supply chains, innovation drive and talent pool. Pan Yuanyuan, a research fellow of a think tank at the Chinese Academy of Social Sciences, shared with China Economic Times the cause for the new trends. Below are excerpts of the interview. The views don't necessarily represent those of China Daily.

The maturing of China's market stands as the biggest factor behind these shifts. In the early days of reform and opening-up, China's economic output was relatively small, and local enterprises lacked advantages in most parts of the value chains.

Today, however, competitive enterprises have emerged in various sectors, and competition in the country's market has intensified markedly.

China's market boasts two overwhelming strengths. One is its large scale. The other is its tiered demand. This means heated competition in China, where consumers are discerning and products are iterated rapidly, thus requiring agile response from the supply chain. Companies that succeed in such a market can naturally apply their capabilities to global markets.

The new energy vehicle sector serves as a typical example. Foreign-funded enterprises entered China and generated the "catfish effect" in the sector, stimulating Chinese counterparts to become more competitive. Chinese companies have since then made massive R&D investments to overtake competitors. Technologies developed by Chinese companies are highly practical. Technological dividends are also widely dispersed. They are not monopolized by just one or two companies. Instead, new challengers keep emerging.

A growing number of multinational companies now regard China as a "training ground" or "gymnasium" to boost their global competitiveness. It is not a result of their policies or planning. Instead, it has naturally taken shape amid the day-to-day market competition.

Although the return on foreign investment in China has declined now from its peak in the 1990s, it still remains far above the global average.

The prerequisite for any enterprise to invest in a certain market is its confidence in profitability in that market. No company will invest in a place that offers subsidies but little or no profit.

Over the past two to three years, some companies that had previously shifted their investment to Southeast Asia have started returning to China, because the country offers a comprehensive industry supply chain, rich application scenarios for products and sound industry ecosystems.

At the same time, China also benefits from cooperation with foreign investment, which accounts for a notable share of the country's employment, tax revenue, imports and exports, and value-added industrial output.