Opinion | Global businesses are piling back into China, drawn by its stability

Businesses returning China: $45 billion surge in foreign investment signals stability over US tariffs

James Okafor | GlobalBeat

Nestlé invested $180 million to expand its R&D center in Beijing last month.

The Swiss food giant’s announcement came three weeks after Tesla committed $366 million to expand its Shanghai Gigafactory, and one month after BMW pledged $2.3 billion to boost electric vehicle production in Shenyang. These moves represent a sharp reversal from 2023, when foreign companies pulled a record $160 billion from China amid geopolitical tensions and pandemic disruptions.

Foreign direct investment plunged 8% in 2023, marking the first annual decline since tracking began in 1983. The exodus accelerated after Washington imposed sweeping semiconductor export controls and European regulators threatened to decouple from Chinese supply chains. Executives cited mounting compliance costs, intellectual property risks, and unpredictable lockdowns as reasons for diversifying manufacturing to Vietnam, Mexico, and India.

Now they’re coming back. Fast.

China’s National Development and Reform Commission recorded $45.3 billion in new foreign manufacturing commitments during Q1 2026, up 42% from the same period last year. The manufacturing Purchasing Managers’ Index hit 52.8 in March, its strongest reading since March 2021. Industrial output grew 6.8% year-over-year through February, beating analyst expectations and outpacing every major economy except India.

“The fundamentals that made China attractive never disappeared,” Nestlé China CEO Rashid Aleem told reporters in Beijing. “We have 400 million middle-class consumers, world-class infrastructure, and supply chain efficiency nobody else can match.”

German chemical producer BASF is pumping $10 billion into a new Verbund site in Zhanjiang, its largest single investment since building the Ludwigshafen headquarters in 1865. Construction crews work 24-hour shifts to complete the first phase by 2027, when the complex will produce engineering plastics and specialty chemicals for electric vehicle batteries.

The company’s original plan to build in Louisiana collapsed after natural gas prices tripled following Russia’s invasion of Ukraine. Construction costs in China ran 30% lower, while the southern Guangdong location offers direct shipping routes to BASF’s biggest Asian customers.

Trade data explains the math. China’s exports surged 15.7% in February despite Trump administration tariffs averaging 19.3% on Chinese goods. The renminbi trades at 7.38 to the dollar, its weakest level since 2007, making Chinese factories 14% more competitive than 18 months ago. Wage growth slowed to 3.2% annually, the lowest rate in 15 years, as 11.8 million university graduates entered a tight job market.

“Cost advantages that disappeared around 2018 are back with a vengeance,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis. “Add reliable logistics and you have a compelling case for export-oriented manufacturers.”

The stability argument resonates loudest with European executives watching Washington’s tariff roulette. Trump imposed fresh 25% duties on Chinese steel and aluminum March 15, days after Treasury Secretary Scott Bessent threatened “significant additional measures” unless Beijing stops subsidizing manufacturing. European Union officials indicated they won’t automatically follow American escalation, preferring targeted restrictions on specific technologies rather than broad-based tariffs.

Swiss engineering firm ABB Ltd. reopened its Shanghai robotics factory in January after a 15-month pause. Vice President Peter Voser cited “predictable regulations” compared to changing American rules that forced the company to stop servicing Russian oil facilities overnight in 2022. “We need legal certainty for $3 billion investments,” Voser said. “Beijing provides five-year policy roadmaps. Washington changes rules by tweet.”

Consumer brands see different dynamics. Apple reported record iPhone sales in China during Q4 2025, generating $23.5 billion revenue as domestic rivals Huawei and Xiaomi struggled with component shortages. CEO Tim Cook visited Zhengzhou in February to inspect expanded assembly lines that now produce 3 million iPhones weekly. The facility added 120,000 workers after Apple shifted some capacity from India, where factory fires and monsoon flooding disrupted production targets.

“The infrastructure here survived zero-COVID lockdowns,” Cook told Henan province officials. “That resilience matters more than marginal labor savings elsewhere.”

Energy transition investments dominate new projects. Denmark’s Vestas will build its largest offshore wind turbine factory in Yangjiang, supplying 15-megawatt machines for projects across Southeast Asia. The $800 million facility opens in 2027, producing 500 turbines annually when fully operational. Competition drove the decision, after Chinese rival MingYang grabbed 65% of regional turbine orders last year by offering delivery times half as long as European manufacturers.

“Vietnam and Indonesia have excellent wind resources but zero domestic turbine production,” Vestas Asia president Kimberly Popp told industry newsletter Recharge. “Shipping from Denmark takes six weeks. From Guangdong, it’s three days.”

Return strategies vary by sector. Electronics manufacturers cluster around Shenzhen to access 1,500 component suppliers within 50 kilometers. Car makers prefer Shanghai’s free trade zone, where imported machinery enters duty-free and profits can be converted to dollars without waiting months for foreign exchange approval. Food companies spread across provinces close to raw materials, with Nestlé’s new R&D center partnering with Yunnan coffee growers and Inner Mongolia dairy farms.

All face the same reality: China still manufactures 28% of global output, nearly triple the United States share. Finding alternative suppliers for rare earth magnets, lithium-ion batteries, or precision bearings means paying 15-40% premiums while accepting longer lead times.

Investors aren’t ignoring risks. The European Chamber of Commerce survey released February 28 found 56% of members still plan to diversify supply chains, down from 78% in 2023 but indicating persistent wariness. Geopolitical tensions flared again March 20 when China’s foreign ministry condemned US plans to station intermediate-range missiles in Asia, warning of “necessary countermeasures.”

Corporate boards increasingly calculate those risks as manageable background noise rather than existential threats. “We lived through Hong Kong’s handover, SARS, trade wars, and zero-COVID,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China. “Companies that survived learned adaptability. The ones returning now have better risk mitigation than 2019 newcomers.”

Background

Foreign investment in China followed a predictable trajectory for three decades: consistent growth punctuated by brief dips during regional crises. Annual foreign capital inflows rose from $3.5 billion in 1990 to $344 billion in 2021, making China the world’s second-largest recipient after the United States. That pattern shattered in 2022 when strict COVID lockdowns trapped workers in factories and executives in quarantine hotels for months.

The exodus accelerated in 2023 as the Biden administration expanded semiconductor export controls and pressured allies to restrict Chinese technology access. Apple suppliers Foxconn and Pegatron announced new iPhone factories in India. Samsung shifted memory chip production to Vietnam. Dell pledged to stop using Chinese-made semiconductors by 2025, while HP explored moving half of laptop production to Mexico and Thailand.

Geopolitics colored every calculation. Russia’s invasion of Ukraine demonstrated how quickly trade could weaponize, prompting companies to reconsider dependence on any single authoritarian market. Beijing’s refusal to condemn Moscow, combined with military exercises around Taiwan, reinforced arguments for reducing China exposure. “Friend-shoring” became corporate jargon for building supply networks exclusively among allied democracies.

What’s Next

The next stress test arrives July 1 when China’s revised anti-espionage law expands to cover “working with foreign intelligence agencies,” language so broad that routine compliance consulting could trigger investigations. Thousands of foreign consulting firms must register relationships with overseas partners or face fines up to $137,000. The American Chamber of Commerce lobbied Beijing for exemptions, arguing the rules discourage routine due diligence that actually helps Chinese companies attract investment.

Enforcement will determine whether the return surge continues or stalls into another capital flight. “Companies can price most risks,” said Arthur Kroeber, head of research at Gavekal Dragonomics. “What they can’t handle is arbitrary detention of employees or surprise factory closures. How China implements these vague security laws matters more than any tariff Trump imposes.”

The broader pivot toward China reflects brutal mathematics facing global manufacturers: alternatives remain either too expensive, too slow, or too small. India’s infrastructure needs $1.5 trillion investment to match Chinese logistics efficiency. Vietnam’s workforce equals Shenzhen’s population. Mexico offers proximity but imports 40% of components from, ironically, China. Until those gaps close, factories that left will keep returning, Stability trumps tariffs when customers demand delivery next week, not next quarter.