In shift from manufacturing, China lures foreign investment in red-hot services sector

Known primarily as a hub of manufacturing, China has diversified into other sectors in an effort to maintain the country’s strong GDP growth and attract further investment. Whereas factories were once the focus of foreign direct investment (FDI) flows, services and people-focused sectors are now attracting greater attention from overseas investors.

The numbers in the first quarter of 2015 bear this out. While FDI overall grew 11.3 per cent to US$34.88 billion, manufacturing investment fell 3.6 per cent to US$11.22 billion year-on-year. In contrast, investment in services rose 24.1 per cent to US$21.59 billion.

"There's an increase of FDI into the services sector, and a slowdown of growth into manufacturing," said  James Zhan, director of the Investment and Enterprise Division for the United Nations Conference on Trade and Development (UNCTAD) and lead author of its annual “Global Investment Trends Monitor” report, in an interview with Reuters. “Within manufacturing, investment into hi-tech is growing, while labour-intensive FDI has been declining.”

As Zhan points out, part of this shift is a necessity, as China’s manufacturing industry now faces increased competition from other countries in Asia. As a result of China’s success, costs and wages are no longer as low as they once were, meaning markets such as Vietnam and Cambodia are deemed more attractive for some investors when looking for opportunities in manufacturing.